Matric number: 21/27bf/01018

Student name : Saliman hassan Olawale

Course code : ECN 201
Course tile : Macro Economics
Department :Finance
name of lecturer: Dr M.I Biala

CONTENT
1. Definition of Supply
2.The Supply Schedule
3. The Supply Curv
4. The Law of Supply
5. Factors Affecting Supply
6. Determination of Equilibrium Price and
Quantity
7.elasticity of supply

Definition of Supply
Supply is the amount of a good or service that producers are willing and able
to offer for sale at each possible price during a period of time, all other things
held constant. Supply may also be defined as the quantity of a good or service
which a producer is willing and able to offer for sale at a particular period of
time and at a given price. Quantity supplied is the amount that sellers are willing
and able to offer at a given price during a particular period of time, everything
else held constant.
Supply depends not only on price, but on many other factors these include
1.The cost of production,
2.he availability of productive resources,
3.the price or supply of other products competing with the actual product, or
competing for the scarce productive resources,
4.the seller’s expectations about the future,
5.the number of sellers (producers).
6. Technological Innovation
7. Government Policy
8.Economic condition

◦ Consumer Demand:As more customers demand a good, companies will focus

on increasing the supply of that good. Though this may increase inventory, this may
also be an indicator that high demand will cause inventory shortages until long-
term production can meet short-term market demand.
◦ Material Costs and Availability:Manufacturers are often limited by the
products used in the manufacturing process. Whether it is shortages of specific
goods or delays in the delivery process, a company can only make a product if it
has the consumable goods to convert into a final product.
◦ Technological Innovation:Companies that have invested more heavily in
technology and innovation will likely have greater capabilities. Whether it is
shorter machine downtime, more efficient use of materials, or shorter manufacturing
time, the equipment and machinery used directly relate to how many goods a company
can expect to manufacture and supply to the market in a given period of time.
◦ Government Policy.Some policies may limit production or impose
disincentives that make a company not want to supply markets with specific goods.
Alternatively, companies may receive tax incentives or subsidies to ramp up
production. In either case, the government directly influences the quantity of
product released to the market.
◦ Natural Factors: Should inclement weather damage crops, the agriculture
sector may have no choice but to undersupply the market. On the other hand,
favorable weather may result in the strongest yields.
◦ Economic Conditions:As macroeconomic conditions worsen, companies may
choose to slow production, decrease long-term investments, or wait to react to
consumer demand and make products accordingly. Alternatively, should credit be
easily accessible for cheap, companies may be more likely to build inventory, incur
additional expenses, and risk manufacturing additional goods to experiment in new
markets.
Type of supply
Short-term supply: The ability of consumers to buy products is restricted by
available supplies. They cannot buy beyond the supplied goods.
Long-term supply: The factor of availability of time when demand changes which
gives the supplier a way to adjust to the quick change in demand.

Joint supply: The supply of products produced and sold jointly.

Composite supply: The supply of a product through its different sources, where the
product serves more than one purpose.

Market supply: The overall desire and capability of suppliers to supply the market
with specific products regularly.

THE LAW OF SUPPLY, SCHEDULE, CURVE

The Law Of Supply: The law of supply states that a higher price leads to a higher
quantity supplied and that a lower price leads to a lower quantity supplied.

The Supply Schedule: Supply schedule is a table or list of prices and the
corresponding quantities supplied of a particular good or services while The supply
curve is a graphic representation of the relationship between the cost of an item
and the quantity the market will supply at that cost. All else being equal, the
supply curve is upward sloping in that as the price (y-axis) of a good increases,
more market participants are willing to supply (x-axis).

Supply Function
The supply function of an individual supplier expresses his behaviour in relation
to what he offers at the prevailing prices in the market in the algebraic form. In
supply function, quantity supplied is expressed as a function of various variables.
SX = f(PX, CX, TX)

Where,
SX = Quantity supplied
PX = Price of the commodity
CX = Cost of production
TX = Technology of production

Type of supply

Short-term: supply is the inventory immediately available for consumption. When

short-term supply has been exhausted, consumers must wait for additional
manufacturing or production for more goods to become available. Short-term supply
is the maximum amount consumers can immediately purchase

Long-Term Supply: Long-term supply considers consumer demand, material

availability, capital investment, and macroeconomic conditions. These factors all
dictate how a company should shift manufacturing to meet long-term demand. Though
long-term supply may only be able to grow gradually over time, suppliers have
greater control over increasing or decreasing long-term supply by enacting
operational strategies.
Joint Supply: Joint supply occurs when the manufacturing of one good will result
in the byproduct of another good. Regardless of the demand for the byproduct good,
it may be manufactured and supplied simply in response for demand of the other
product. For example, the production of crude petroleum results in gasoline, fuel
oil, kerosene, and asphalt. The supply of one item may increase simply due to
greater demand of other items.

Market Supply: Market supply refers to the daily supply of goods often with a very
short-term usable life. For example, grocery stores may measure their market supply
of fresh produce or fish. Each of these goods is exclusively dependent on the
supplier's ability to harvest these products, as additional supply may be out of
the control of the farmer.

Composite Supply :Opposite of joint supply, composite supply is the offering of a

product that is multiple products packaged together. Both products must be offered
together, and the maximum supply is equal to the smaller of the two products. For
example, a company manufacturers pints of ice cream that are sold along with
compostable spoons. Neither product is sold individually. In this example, the
amount of composite supply is the lower of the quantity of pints of ice cream or
composable spoons.

Equilibrium
Economic equilibrium occurs when supply and demand are equal. It is the price point
when the supply curve and demand curve overlap. At equilibrium, the market will
agree on the given market price.

Monopoly
A monopoly is a condition in which one seller controls the supply side of the
market. Government regulation often attempts to control market conditions to ensure
fair competition on the supply side. This is to ensure consumers are able to buy
goods at a fair price instead of a single supplier dictating what the market price
will be.

Competition
To avoid a monopoly, there must be competition. This means different companies must
supply similar goods to consumers. Consumers then must choose which items to buy.
Competition is meant to breed price competition, innovation, and market control to
ensure that a single market participant doesn't have too much power over consumers.

Oversupply
Oversupply occurs when there is an excessive abundance of an item that consumer
demand can't satiate. Consider an abundant harvest that results in an oversupply of
crops; a result impact may be reduced prices to consumers to further incentivize
consumption of this good compared to a scarcer good.

Scarcity
Scarcity is the opposite of oversupply. Consider a failed crop year ruined by
inclement weather. Because less supply is available, it may be more difficult for
consumers to obtain a specific good. This may be prevalent due to supply chain
issues causing manufacturing delays or government policies pausing specific
activity.

Equilibrium Price and Quantity

The equilibrium price is the price at which the quantity of a commodity demanded
and supplied are equal. It is the price at which there is neither a surplus nor a
shortage of the commodity in the market.
Under perfect competition, the equilibrium price is the market price for a
commodity and it is determined by the interaction of the forces of demand and
supply.
Example:
Market Demand and Supply Schedule for Indomie:
Price Quantity Demanded Quantity Supplied
₦25 20 100
₦20 40 80
₦15 60 60
₦10 80 40
₦5 100 20

Use the above schedule to plot a graph show



From the graph above, it can be seen that at 15, sixty cartons of Indomie were
demanded and sixty cartons of Indomie were equally supplied. 15 is the equilibrium
price while sixty cartons of Indomie is the equilibrium quantity and the point of
interaction between the supply curve and demand curve (E) is called the equilibrium
point.

If the price is at the level where supply is less than demand, then there will be
excess demand which may result in shortages and increase the price. This is seen
below the equilibrium point. When the market price of a commodity is higher than
the equilibrium price, then supply will definitely be higher than demand and the
market will experience excess supply, resulting in a situation that represents
surplus. This is seen above the equilibrium point.
Price Elasticity of Supply

Price elasticity of supply measures the responsiveness to the supply of a good or

service after a change in its market price. According to basic economic theory, the
supply of a good will increase when its price rises. Conversely, the supply of a
good will decrease when its price decreases.

There’s also price elasticity of demand. This measures how responsive the quantity
demanded is affected by a price change. Overall, price elasticity measures how much
the supply or demand of a product changes based on a given change in price. Elastic
means the product is considered sensitive to price changes. Inelastic means the
product is not sensitive to price movements.

Price elasticity of supply = % Change in Supply / % Change in Price

• When the price elasticity of supply is >1, the supply is elastic.

• When the price elasticity of supply is<1, the supply is inelastic.
• When the price elasticity of supply is 0, this means there is no change
in the prices.

Type of price Elasticity of supply

1. Perfectly Elastic Supply:
If there is infinite elasticity, then it is considered a perfectly elastic supply.
In this scenario, with a minor fall in the price level, the supply will become zero
and with a minor rise in the price, the supply will become infinite. The perfectly
elastic supply example is that in such a market the suppliers desire to supply any
quantity of the commodity if there is a higher level of price. A perfectly elastic
supply curve is depicted as a straight line that is parallel to X-axis.

2. Unit Elastic Supply:
If the change amount supplied is exactly equal to the change in its price, then it
is termed as unit elastic supply or unitary elastic supply. In the above-mentioned
scenario, the price elasticity of supply is equal to 1.


3. Relatively Greater-Elastic supply:

Relatively greater elastic supply occurs when the change in supply is relatively
greater as compared to the change in price. In this case, the value of price
elasticity of supply is greater than 1.

4. Relatively Less-Elastic supply:
Relatively Less Elastic supply occurs when the change in supply is relatively
lesser as compared to the change in price. In this case, the value of price
elasticity of supply is less than 1.

5. Perfectly Inelastic Supply

A service or commodity is termed as perfectly inelastic when a certain quantity of
the said commodity can be supplied irrespective of the price. The value of the
price elasticity of supply is zero.


The factors that affect the price elasticity of supply

1. The nature of the industry- The nature of the industry under
consideration is a very important factor that affects the price elasticity of
supply.
2. Nature-constraints- Nature can restrict the supply of some products.
For example- It takes 15 years for a rubber tree to grow.
3. Risk-Taking- The willingness to take risks by the entrepreneurs also
affect the price elasticity of supply.
4. Nature of goods- Another important factor that can affect the price
elasticity is the availability of the products.
5. Definition of commodity- The price elasticity of supply is great if the
commodity is defined narrowly.
6. Time- In the long run, supply is considered to be more elastic as
compared to that in the short run.
7. The cost of attracting resources- Attracting the resources from the
other industries is an important factor to increase the supply.
8. Level of price- Different prices can vary the price elasticity of
supply.
9. Factor mobility- The price elasticity will be greater when the mobility
of the services is high.

Determinants of Elasticity of Supply

The determinants of elasticity of supply are as follows:
1. Number of producers
2. Spare capacity
3. Effortlessness of switching
4. Ease of storage
5. Length of the period of production
6. The time frame of training
7. Mobility of factors
8. Reaction of costs