SUPPLY AND PRICE

ELASTICITY OF SUPPLY
|TOPIC1|
Supply, Supply Schedule and
Supply Curve CHAPTER CHECKLIST
Supply, Supply Schedule and
SUPPLY Supply Curve
Supply refers to the quantity of a commodity that a seller is willing to sell at
Movement Along the Supply
Curve and Shift in the Supply
different prices during a given period of time. Curve
In other words, supply refers to whole quantity of goods that can be
sale at different possible prices. offered for Concept and Measurement
It should be kept in mind that supply is a desired
of Price Elasticity of Supply
that the producers are willing to sell and not whatquantity, i.e. it is the quantity
they actually sell.
QUANTITY SUPPLIED
Quantity supplied refers to the amount of commodity offered for sale against
specific price at a point of time.

Individual Supply
Supply ofa particular commodity by an individual firm at different prices in the
market is termed as individual supply.

Market Supply
Quantities of a particular commodity offered for sale by all the firms ar different
prices in the market is known as market supply.
Market supply is the sum total of supply of all the sellers (or firms) of a
commodity in a market at different prices during a given period of time.
 123
Price.
and,
Py
Elasticity qf Supply

UPPLY SCHEDULE the rising portion of Marginal

Note The short-run supply cUrve is point of Average Variable Cost
Cost cuve from the minimum
presentation of various quantities of a curve is the rising portion of
tabular cUve. The long-run supply the minimum point of
tisa sale, corresponding to diferent long-run Margina Cost cuUve from
ommodity offered for long-run Average Cost CUrve.
commodity. It shows the positive
prices of that
and quantity supplied of a Supply curve bas two aspects
dationship between price
aommodity. Individual Supply Curve
shedulehas two aspects Graphical representation of the relationship between price
py
individual supply ofa commodity by an individual unit
indiidual SupplySchedule a seller is
and
is called individual supplycurve.
presentation of various quantities that
Tibular individual supply )Price
ine tosell at different prices is called
chedule.
Individual supply schedule

Price ()
Quantity supplied (units) o'
Quantity supplied
1
100 (units)
Individual supply curve
a
curve shows that more of
200
2
individual supply
300 Upward slope higher pricc.
commodity is supplied only at a
3
400

5
500 Market Supply Curve between price
clear that as price
rises, of the relationship
Graphical representationcommodity
From the above
schedule, it is
ofa by all firms is called
the
Supply increases.
and market supply
Curve.
market supply horizontal summation
of
is a
Market Supply Schedule sellers
Market supply curve
also an upward sloping
curve.
variousquantities that all the individual supply curves. It is
of
labular presentationdifferent prices is called
market supply S(A)
at S(B)
are willing to sell (3)
Price
schedule. SA + B)
Market supply schedule
M a r ks
eut pply

Quantity
Market supply
Quantity Suppliedof (A+ B) (units)
supplied of firm B
Price () firm A 15
10 +5 =
5 S
10 20 +10 = 30 +X
1 10 Quantity supplied (units)
30 +15=45
2 20 Market supply curve
15
30
40 +20 =60
3 20 50 +25 =75
4
40
25
SUPPLY FUNCTION
two
5
50
market consists of only (Determinants of Supply)
assumed that relationship betvween
Ut has
been
Supply function studies the functional determinants. It s
firms). supply of a commodity and its various
SUPPLY CURVE schedule showing expressed in the following equation
representationof supply
commodity
offered for sale at Sy =fPs,Pe.G, Pp,T, Np ,Ex ,Gp)
It is a graphical
quantities of a that commodity.
Where, Sx =Supply of commodity
various possible prices of price of a f=Functional relations
relationship between upward
terent positive supplied. It is an
the quantity Py =Own price of a commodity X
It shows its
commodity and
sloping curve.
 Allinone ECONOMICS
124 Clas Ih
PR = Price of related goods
(vii) Business Confidencc/Expectation(E,)
In the situation of high business
G= Goal of the firnm
expectations regarding as per in sconfdemand
idence,,i.e.i. future
Pp =Price of factors of production
T= State of technology
N;= Number of firms in the industry
tend to rise and supply starts
(viii) Government Policy (Gp)
rising and
invicve-evsetmrsae,nS
The production of the commodity is
Ex = Business confidence/Expectation
Gp = Government's policy
heavy duty on its production is simposed. In
this case,
esnnlywill decrease. In the Same way, tax concesi discouraged, i
encourage producers to increase supply. Also,,
Factors Affecting Supply offered by the government has a positive efe subsidy
The varios factors affecting supply of acommodiry are supply. AAs subsidy on a product increases, supply alsO
increases, and vice-versa,
() Own Price of a Commoditv (P)
Note The first six factors affect individual supply. A the
There is a direct relationship between own price of a taken together affect market supply. factors
commodity and its quantity supplied. Higher the price,
higher the quantity supplied and vice-versa. LAW OF SUPPLY
(i) Price of Related Goods (P.)
It states that keeping other determinants of
The supply of aparticular commodity is inversely related constant, the quantity supplied decreases with the suppy
with the price of its substitute commodities, such as the price and increases with the rise in price.
supply of wheatwill fall wich rise in the price of rice, i.e. Law of Supply derives the relationship between price and
supply decreases and vice-versa. quantity supplied. According to this law, quantiry supple
In case of complementary goods, supply is directly of a commodity is directly related to the price of a
related with the price of complementary goods. With commodity. The quantity supplied decreases with the Gl
rise in price of petrol, supply of cars will rise, i.c. supply in price and vice-versa.
increases and vice-versa.
Note The Law of Supply states that other things being equal,
(ii) Goal of the Firm (G) quantity supplied increases with increase in price and
If goal of the firm is to maximise profits, more quantity decreases with decrease in price.
of the commodity will be offered only at ahigher price. Law of Supply is explained with the help of following scbedak
On the other hand, if goal of the firm is to maximise and diagram
sales, more will be supplied even at the same price or Price ) Quantity supplied (units)
same will be supplied even at a reduced price. Sales 10 100
maximiser firm supplies greater quantity than a profit
maximiser firm. 15 200
20 300
(iv) Price of Factors of Produetion (P,)
With the rise in the price of factors of production, the )Price
cost of production rises, which results in decrease in
20
supply due to lesser profit margin and vice-versa.
15
(u) Stateof Technology () 10
New discoveries bring reduction in costs and increase in
production. This will increase the level of supply also. 100 200 300
-X

A cost saving technology increases the supply. Quantity supplied (units)

(ui) Number of Firms in the Industry (N) Ir S
right.Commodiy
Supply curve moves upward from left toofthe
Increase in the number of firms in the market implies own price
positive relationship between suplicd
increase in market supply and decrease in the number of and its quantity supplied. As price rises, quantity
firms implies decrease in market supply of acommodity. also rises and vice-versa.
 iPriceEElasticity of Supply 125
spband

Asmptions Law of Supply () Antique Goods, Rare Articies and

Paintings
AsSHmptionssof law of supply are These goods are highly priced, but still their
is no change in
the price of the factors of supply is limited, as supply here is affected by
(0There
production. factors other than price. So, the supply of
techniques of production. Hussain's paintings cannot be increased even if
a There is no change in the goal of the firm
There is no change in the buyers are willing to pay high price for it.
There is no change in the price of
related goods. (iv) l'uture Expectations Regarding Priees
Investors have full confidence over busines. anticipate that they
If prices are rising, but sellersthen
(p) would rise further in future, they would not
aSSumption that other
e law of Supply holds goods on the
deteminants of supply remain constant, other than own price of increase their supply now.
the commodity. (u) Lackof Resources
cconomies,
Causes for Application of Law of Supply' In underdeveloped or backward lack of
supply cannot be increased due
to
Or resources.

(ui) Labour Market

Why Does Law of Supply' Operate? In the labour market, it is
observed that as the
following are the reasons for the operation ofLaw of
Supphy workers tend to work for
less
The wage rate rises, the
(O Profit Motive hours, so as to enjoy more leisure.
to decrease at
As price rises, supplier's profit
margin also rises. This
more with
This causes the supply of workers
increased profit motivates a supplier to supply increased wage rate.
increase in price.
() Change in the Number of
Firms
as
TOPIC PRACTICE 1
imply a higher profir margin,
High prices generally margin particular
of profit makes the
discussed above. High this, the
investors. As a result of
business lucrative to new MULTIPLE CHOICE
number of firms increases in the market, causing supply to
rise simultaneously.
Questions 1 Mark
implies
(iii) Reduction in Stock 1The supply of a commodity
are willing to supply more from (a) actual product of a good
As price rises, the producers causing stocks to deplete and (b) stock available for sale
their accumulated stocks, (c) total existing stock of the good sale at a
supply to increase.
that is (d) the amount of goods offered for
quantity of a particular commodity different prices, per unit of time
Note Stock It refers to the total
available with the supplier.
stock that he is willing to part
with, at 2 Supply of a commodity is ...concept.
Supply lt refers to that part of (a) stock (b) flow
existing prices. (c) Both (a) and (b) (d) wholesale

Exceptions to the Law of Supply

supply are
3 The suppBy curve is usually
(a) upward rising
Cernain goods which do notfollow law of (b) downward sloping
() AgriculturalGoods (c) nothing definite can be said
goods, as their
Law of Supply does not apply for agricultural on price.
(d) None of the above
and not
supply depends on climatic conditions 4The claim that other things being equal,
(ii) Perishable Goods the quantity supplied of a good rises when
Perishable goods like fruits, vegetables, milk and milk the price of good rises and vice-versa is
products cannot be held for long. Therefore, suppliers are known as
willing to supply these products, even when prices are less, for (a) Law of Economics (bLaw of Supply
fear that they would become totally useless. (c) Law of Demand (d) All of these
126 Allinone ECONOMICS Class
I1th
The functional
commodity relationship
and its various between supply of a 13 What does the upward sloping supply
curve indicate?
as determinants is known
Ans Upward sloping supply curveshows that the
\(al supplyfunction price and quantity supplied are moving in the
(b) change in supply same direction, i.e. they are positively related
(c) change in
(d) None of thequantity supplied
above
14 How will you get the market supply schedule
from the supply schedules of an individuat
6 Supply schedule shows
...elationship
price apd quantity supplied between
of a commodity.
firm?
Ans By horizontally aggregating the supply schedule.
apositive (b) inverse (c) negative (d) opposite ofall individual firms, we get the market
supnlw
Hint: Supply schedule depicts direct (i.e. positive) schedule.
relationship
between price and quantity supplied ofa commodity,
t price increases, supply of a commodity also increases.
i.e. 5 How can you find out the market
supply curve from individual l supply
1Which of the following shows
relationship between curves?
the price of a commodity and quantity supplied Ans The horizontal summation of all individual sunnlw
curves, gives us the market supply curve.
graphically?
(a) Supply statement 16 State the Law of Supply.
(b) Supply schedule Ans The Law of Supply states that other things being
) (cSupply curve equal, quantity supplied increases with increase
(d) All of the above in price and decreases with decrease in price.
S A firm will supply more quantity of a
commodity at
same price or even at a reduced price, if the firm
Wants to
SHORT ANSWER
(a) maximise profit (b) maximise social welfare Type Questions |s/4 Marks
(c) raximise sales (d) maximise wealth 17 Explain, how technological progress is a
Answers determinant of supply of a good by a firm.
1. (d) All India 2014
2. (b) 3. (a) 4. (b) 5. (a)
6. (a)
Ans Technological progress tends to lower the
7. (c) 8. () Marginal and Average Costs of production,
because better technology facilitates higher output
with the same inputs. Accordingly, producers are
VERY SHORT ANSWER willing to supply more at the existing price, as a
Type Questions IMarkl result, supply of producer increases.
9What is market supply of a product? 18 Explain, how input prices are a determinant
of supply of a good by a firnm. All India 2014
AllIndia 2014,2013 Ans In case of increase in input price, cost of
Ans Market supply of a product refers to supply by all the production tends to rise. Accordingly, producers
firms producing that product. willsupply less of the commodity at its existing
10 Define supply. All India 2009; Delhi 2009C price as there is a decrease in producer's profit.
Ans Supply refers to the quantity of a commodity that a seller On the other hand, in case of fall in the prices of
is willing to sell at different prices during a given period inputs, the cost of production tends to fall,
of time. leading to an increase in producer's profit. This
induces him to increase his supply.
11 What is meant by supply schedule? 19 Developing countries have constraints.
Ans Supply schedule is a tabular presentation of a relationship Do you agree?
between price and quantity supplied of a commodity. Ans This is true that developing countries have supp'y
12 What is supply curve? constraints. Supply is limited due to
Ans Supply curve is a graphical representation of supply underdeveloped technology, inadequate
transportation and infrastructural facilities and
schedule, showing various quantities of a commodity SCarce resources etc. Producers are willing to
offered for sale at different possible prices of that increase supply but do not have the resources to
commodity. do so.
 127
andPrice. Elasticity ofSupply
My
diagram and schedule, explain the Law of
SS is the supply curve sloping upward. It shows a
1)Using positive relationship between price and quantity
Supply. supplied of a commodity. When price increases from
to
TheLaw of Supply
statesthat other things being equal, ?10to ? 20, quantity supplied increases from 100
quantitysupplied increases with theincrease in price and
Ans
200 units.
decreases withthe decrease in price of a commodity.
Y
be explained with the help of following schedule )Price S
Itcan
and diagram 30

20
Price () Quantity supplied (units)
10
10 100 S

20 200 X
100 200 300
30 300
Quantity supplied
(units)
The supply schedule shows the positive relationship
is in
between price and quantity supplied. This
accordance with the Law of Supply.