Presented by GROUP 5

'Supply refers to the quantity of a commodity

which producers or sellers are willing to
produce and offer for sale at a particular
price', in a given market, at a particular
period of time.
SUPPLY IS A DESIRED QUANTITY

SUPPLY IS ALWAYS EXPLAINED

WITH REFERENCE TO PRICE

TIME DURING WHICH IT IS

OFFERED FOR SALE
1. Cost of the factors A higher cost of production typically causes a firm
of production to supply a smaller quantity at any given price.

2. ChangeS in technology Technological advances can improve

production of goods efficiently.

3. Price of related goods

There is a direct relationship between a good's
price and the quantity supplied.

4. Change in the number of

companies in the industry
More competition usually means a reduction in
supply.

5. GOVERNMENT POLICY

Taxes increase production costs for

producers.
6. The goal of a business
firm When a firm's profits increase, it's more
motivated to produce output (goods or
services).
7. EXPECTED FUTURE PRICE
E.G. Natural factors
 In economics, the marginal cost is the
change in total production cost that
comes from making or producing one
additional unit.
FORMULA:
Marginal Cost = Change in Total Expenses /
Change in Quantity of Units Produced
 SUPPOSE THAT A FACTORY IS CURRENTLY PRODUCING 5,000 UNITS AND
WISHES TO INCREASE ITS PRODUCTION TO 10,000 UNITS. IF THE FACTORY’S
CURRENT COST OF PRODUCTION IS $100,000, AND IF INCREASING THEIR
PRODUCTION LEVEL WOULD RAISE THEIR COSTS TO $150,000

MARGINAL COST IS THE EXPENSES NEEDED TO

MANUFACTURE ONE INCREMENTAL GOOD.
AVERAGE COST IS THE TOTAL COST OF MANUFACTURING
DIVIDED BY TOTAL UNITS PRODUCED.
'Marginal cost is reflective of only one unit, while average
cost often reflects all unit produced.

Fast Fact:
Marginal cost also has an impact on average cost. When
marginal cost is less than average cost, the production of
additional units will decrease the average cost. When
marginal cost is more, producing more units will increase
the average. cost per unit.
 Marginal revenue is the change in total
revenue divided by the change in total
output quantity. It is the increase in
revenue that results from the sale of one
additional unit of output.
FORMULA:
Marginal Revenue = Change in Revenue /
Change in Quantity
 A COMPANY SELLS WIDGETS FOR UNIT SALES OF 100, SELLS AN AVERAGE OF
10 WIDGETS A MONTH, AND EARNS 1000 OVER THAT TIMEFRAME. WIDGETS
BECOME VERY POPULAR, AND THE SAME COMPANY CAN NOW SELL 11
WIDGETS FOR 100 EACH FOR A MONTHLY REVENUE OF 1100.

THE MARGINAL REVENUE CURVE IS OFTEN DOWNWARD SLOPING BECAUSE THERE IS OFTEN AN
ECONOMICALLY INVERSE RELATIONSHIP BETWEEN PRICE AND QUANTITY. AS A COMPANY DECREASES
THE PRICE OF ITS PRODUCT, MORE UNITS WILL LIKELY BE DEMANDED; AS THE PRICE INCREASES,
DEMAND OFTEN DECREASES. THE MARGINAL REVENUE CAN BE ANALYZED BY COMPARING MARGINAL
REVENUE AT VARYING UNITS AGAINST AVERAGE REVENUE.WHILE THE AVERAGE REVENUE IS SIMPLY
THE TOTAL AMOUNT OF REVENUE RECEIVED DIVIDED BY THE TOTAL QUANTITY OF GOODS SOLD.
'Law of supply states that other things remaining the same,
the quantity of any commodity that firms will produce and
offer for sale rises with rise in price and falls with fall in
price.'

Higher the price, higher will be quantity supplied and lower

the price smaller will be quantity supplied.
SUPPLY FUNCTION

SUPPLY SCHEDULE

SUPPLY CURVE
IN SUPPLY FUNCTION, QUANTITY SUPPLIED IS EXPRESSED
AS A FUNCTION OF VARIOUS VARIABLES.

SX = F (PX, PR, NF, G, PF, T, EX, GP)

WHERE,
SX = SUPPLY OF A COMMODITY
PX = PRICE OF THE COMMODITY
PR = PRICE OF THE RELATED GOODS
NF = NUMBER OF FIRMS
G = GOAL OF THE FIRM
PF = PRICE OF FACTORS OF PRODUCTION
T = TECHNOLOGY
EX = EXPECTED FUTURE PRICE
GP = GOVERNMENT POLICY
INDIVIDUAL SUPPLY SCHEDULE AND INDIVIDUAL SUPPLY CURVE
Supply schedule shows a tabular representation of law of supply. It presents the different
quantities of a product that a seller is willing to sell at different price levels of that product.

The graphical representation of supply schedule is called supply curve.

 market SUPPLY SCHEDULE AND market SUPPLY CURVE

Refers to a supply schedule that represents the different quantities of a product that
all the suppliers in the market are willing to supply at different prices.
THE LAW OF SUPPLY DOES NOT APPLY STRICTLY TO AGRICULTURAL PRODUCTS
WHOSE SUPPLY IS GOVERNED BY NATURAL FACTORS. IF DUE TO NATURAL
CALAMITIES, THERE IS FALL IN THE PRODUCTION OF WHEAT, THEN ITS SUPPLY
WILL NOT INCREASE, HOWEVER HIGH THE PRICE MAY BE.

SUPPLY OF GOODS HAVING SOCIAL DISTINCTION WILL

REMAIN LIMITED EVEN IF THEIR PRICE TENDS TO RISE.

SELLER MAY BE WILLING TO SELL MORE UNITS OF A

PERISHABLE COMMODITY AT A LOWER PRICE.