Theory of supply

CLASS 11
MICRO ECONOMICS
 NOTES
THEORY OF SUPPLY
The quantity of a commodity which is offered by a seller for selling
at a particular price during a given time period is known as supply.

Determinants of supply
Factors that affects the quantity supplied in the market is termed
to be the determinants or the factors of supply

1.Cost
When factor price increases, the cost of production also increases
which restricts the producer to produce more quantity of output.
As a result, the total supply decreases.

C ---S
C ---S

2.Price of commodity
There is positive relation between price and quantity supplied of a
commodity. That is, if price increases then its quantity supplied also
increases and vice versa. As the producer is now earning more profit
due to more margin than earlier.

P ---S
P ---S

JOIN OUR YOUTUBE COMMUNITY

ECONOMICS ON YOUR TIPS COMMERCE CHAMPIONS ACCOUNTS ADDA

CLASS1111ECONOMICS
CLASS ACCOUNTS
 NOTES
THEORY OF SUPPLY
3.Number of firms
Supply increases with increase in number of firms due to increase
in number of producer and decreases due to reduction in number
of producers.

4.Taxation
It is the compulsory contribution which is paid by the citizen of a
country without receiving any direct benefit.
When government imposes high rate of indirect tax, the producers
are forced to reduce their quantity supply of goods due to higher
cost .Likewise, when the rate of indirect tax decreases the quantity
supply increases.

5.Technology
Technology and supply are directly related to each other. When
technology becomes more advanced then the supply increases and
vice versa.

6.Goal of the firm

Generally, the firm increases its supply only at higher prices, as
their aim is to earn profit. But as the trend changes, some firms are
willing to supply more even at a lower price as their objective is to
capture market share.

JOIN OUR YOUTUBE COMMUNITY

ECONOMICS ON YOUR TIPS COMMERCE CHAMPIONS ACCOUNTS ADDA

CLASS1111ECONOMICS
CLASS ACCOUNTS
 NOTES
THEORY OF SUPPLY
7.Future expectation
The future expectation of change in price is also an another
determinant of supply. If there is expectation of earning maximum
amount of profit in the future then the producer will increase the
supply and vice versa.

8.Price of related goods

If price of related goods increases then its quantity supply will also
increases.
Example If price of close-up increases with keeping constant the
price of pepsodent then the supply of pepsodent will also increase.

Law of supply
Definition
With keeping other things constant, there is positive relationship
between price and quantity supplied of a commodity. i.e. if price
increases then its supply also increases and vice versa.

Assumptions
Prices (cost) of factor of production remains the same.
No change in taxation policy.
Technology must be constant.
Price of related goods should not change.
Goal of a producer remains the same.

Supply schedule
It is a list which represents about how much quantity supply is
supplied by a seller at various possible prices.

JOIN OUR YOUTUBE COMMUNITY

FORMS OF MARKET (ECONOMICS)

ECONOMICS ON YOUR TIPS COMMERCE CHAMPIONS ACCOUNTS ADDA

CLASS1111ECONOMICS
CLASS ACCOUNTS
 NOTES
THEORY OF SUPPLY
Price Quantity supplied

10 20

15 50

20 100

The above schedule and diagram represents the law of supply.

That is, when price of the commodity increases from 10 to 15 and
then 20, its quantity supplied also increases from 20 to 50 and
then 100(i.e. positive relation between price and quantity
supplied), keeping other things constant.
Linear Supply Function
Where, QS = Supply for good X
a = Supply of good X when price is 0(Zero)
b = slope of Supply
Here, the positive sign represents the positive relation between
price and quantity supplied of good x. i.e. if price increases than
supply also increases and vice versa.
This function helps us to find the level of supply at a certain price
of the commodity.

Change in supply and Change in quantity supplied

The supply for a commodity shuffles due to change in 2 reasons
1.Change in price of the good( change in quantity supplied)
2.Change in other factor of the goods(Change supply)
JOIN OUR YOUTUBE COMMUNITY
FOLLOW US ON INSTAGRAM
@gaurav_jainofficial
ECONOMICS ON YOUR TIPS COMMERCE CHAMPIONS ACCOUNTS ADDA

CLASS1111ECONOMICS
CLASS ACCOUNTS
 NOTES
THEORY OF SUPPLY
Change in supply
With keeping price of a commodity constant, if the supply of a
commodity changes due to change in other factors then it is known
as change in supply. In case of change in supply the supply curve
will shift from its original position.

S.No Increase in supply Decrease in supply

1. With the constant price if With the constant price if

there is favorable change in there is unfavorable change in
other things which causes other things which causes
increase in supply then it is decrease in supply then it is
known as increase in supply known as decrease in supply

2. P-- OT --S P ̅--OT --S

3. In case of increase in supply In case of decrease in supply

the supply curve will shift the supply curve will shift
parallel towards right parallel towards left.

JOIN OUR YOUTUBE COMMUNITY

JOIN OUR TELEGRAM CHANNEL ( GAURAV JAIN OFFICIAL )

ECONOMICS ON YOUR TIPS COMMERCE CHAMPIONS ACCOUNTS ADDA

FREE NOTES/PDF PRACTICE PAPER DAILY UPDATE

CLASS1111ECONOMICS
CLASS ACCOUNTS
 NOTES
THEORY OF SUPPLY
Change in quantity supplied
With keeping other things constant, if the supply of a commodity
changes due to change in price of a commodity then it is known as
change in quantity supplied. In case of change in quantity supplied,
the point of supply changes but on the same supply curve only.

S.No Extension of Quantity Contraction of Quantity

supplied supplied

1. With keeping other things With keeping other things

constant, if price of
commodity increases
which causes increase in
quantity supplied then it is
known as extension of
quantity supplied.
constant, if price of
commodity decreases
which causes decrease in
quantity supplied then
it is known as contraction
of quantity supplied.

2. (OT) ̅---P ---QS (OT) ̅---P --QS

3. The supply will move The supply will move

upward on the same downward on the
supply curve. same supply curve.

JOIN OUR YOUTUBE COMMUNITY

ECONOMICS ON YOUR TIPS COMMERCE CHAMPIONS ACCOUNTS ADDA

CLASS1111ECONOMICS
CLASS ACCOUNTS
 NOTES
THEORY OF SUPPLY
Extension of quantity supplied Contraction of Quantity Supplied

Price elasticity of supply

Price elasticity of supply refers to the degree of responsiveness of
supply of a commodity with reference to change in its price.

Methods of calculating elasticity

For calculating price elasticity of supply there exist 2 methods,
which are as follows :-
Proportionate method.
Geometric method.

JOIN OUR YOUTUBE COMMUNITY

ECONOMICS ON YOUR TIPS COMMERCE CHAMPIONS ACCOUNTS ADDA

CLASS1111ECONOMICS
CLASS ACCOUNTS
 NOTES
THEORY OF SUPPLY
1.Proportionate Method
e= Proportionate change in quantity supply ∆Q/Q
e=
Proportionate change in price ∆p/p

e = Q/∆Q x ∆P/P

e = p/QS X ∆QS / ∆P

P = Old price Q.S = Old supply

∆P = change in price ∆Q.S = change in supply

Most important note

When Proportionate change is multiplied by 100, it becomes
percentage change
i.e = ∆Q/ Q = Proportionate change in QD
∆Q /Q X 100 =Percentage change in QD

So the formula of proportionate change can also be written as

percentage change, if we multiply and divide it by 100

JOINOFOUR
FORMS YOUTUBE
BUSINESS ORG.COMMUNITY
(BUISNESS)
CLICK HERE
ECONOMICS ON YOUR TIPS COMMERCE CHAMPIONS ACCOUNTS ADDA

CLASS1111ECONOMICS
CLASS ACCOUNTS
 NE SHOT
THE GAURAV JAIN

BEGINNER ADVANCED
THEORY OF SUPPLY CLASS 11
WHATSAPP CHANNEL FOR NOTES AND IMPORTANT QUESTIONS

7690041256
YE LE BAALAK ... MAUJ KAR

THE GAURAV JAIN 7690041256