ECONOMICS

WHEN GOVERNMENT INTERVENE INTO

THE MARKET FOR SUPPLY
 GROUP DETAILS
 381- SPANDAN THAKKAR
 382-TULSI THAKKAR
 383-KUDARAT THAKOR
 384-KRISHNA THUMMAR
 386-YASHANSH TILWANI
 387-YATNA TIMANIYA
 388-ISHA TOMAR
 390-DHAIRYA TRIVEDI
TABLE OF CONTENT
1. DEFINITION AND INTRODUCTION OF SUPPLY
2. LAW OF SUPPLY
3. DETERMINANTS OF SUPPLY.
4. MEANING AND INTRODUCTION OF GOVERNMENT
INTERVENTION
5. REASONS OF GOVERNMENT INTERVENTION IN MARKET FOR
SUPPLY
6. PROS AND CONS
7. GOVERNMENT INTERVENTION IS HELPFUL AND NECESSARY FOR
MARKET
8. CONCLUSION
DEFINITION AND INTRODUCTION OF
SUPPLY

BY YASHANSH TILWANI-381
*DEFINITION AND INTRODUCTION OF SUPPLY


DEFINITION
Supply is a fundamental economic concept that describes
the total amount of a specific good or service that
available to consumers .
Supply refers to what is offered for sale and not what is
finally sold

INTRODUCTION
The concept of supply is based on voluntary decisions
made by producers, whether they are proprietorships
working out of downtown corporate headquarters
The role of supply analyzed in competitive markets ,
where the “invisible hands” of competition , identified by
Adam Smith
Price is perhaps the most obvious determinant of supply .
LAW OF SUPPLY

BY KRISHNA THUMMAR-384
*LAW OF SUPPLY

 "When all other factors affecting supply are assumed to be constant, as price increases, supply
expands and as price supply contracts is called law of supply".

 When price changes, quantity supplied changes in the same direction. If the price of
strawberries rises, for example, farmers find it desirable to increase the quantity of
strawberries they supply because the higher price provides the lure of increased revenue for
every unit produced. This direct relationship between price and quantity supplied, when all
other factors are kept constant.

 The law of supply is the microeconomic law that states that, all other factors being equal, as
the price of good or service increases, the quality of goods or service that suppliers offer will
increase, and vice versa. the law of supply says that as the price of an item goes up, suppliers
will attempt to maximize their profits by increasing the quantity offered for sale.
 The law of supply, states that ceteris paribus sellers supply more goods at a higher price then
they are willing at a lower price .

Px 4 3 2 1
QxS 100 80 60 40

 In this figure price is plotted on the vertical axis OY

and the quantity supplied on the horizontal axis OX.
The four points d, c, b, and a show each price quantity
combination. The supply curve Ss' slopes upward
from left to right indicating that less quantity is
offered for sale at lower price and more at higher
prices by the sellers not supply curve is usually
positively sloped.
DETERMINANTS OF SUPPLY.

BY ISHA TOMAR-388
DETERMINANTS OF SUPPLY.

 Supply can be influenced by a number of factors that are termed as determinants of supply.
Generally, the supply of a product depends on its price and cost of production. In simple
terms, supply is the function of price and cost of production.
 PRICE
 1) Unlike demand there is a direct relationship between the price of a product and its supply.

2) If the price of a product increases, then the supply of the product also increases and vice versa.

3) Change in supply with respect to the change in price is termed as the variation in the supply of
the product.

 TECHNOLOGY

 1) A better and advanced technology increases the production of a product, which

results in the increase in the supply of the product.

2)For example, the production of fertilizers and good quality seeds increases the
production of crops. This further increases the supply of the food grains in the
market.
 GOVERNMENT POLICIES

 1) Implies that the different policies of government, such as fiscal policy and industrial policy,
has a greater impact on the supply of a product.

 2) For instance, increase in tax on excise duties would decrease the supply of a product. On
the other hand, if the tax rate is low, then the supply of the product would increase.

 COST OF PRODUCTION
 1) Implies that the supply of a product would decrease with increase in the cost of
production and vice versa.

 2) The supply of the product and the cost of production are inversely related to each
other.

 3) The cost of production rises due to several factors such as loss of fertility of land,
high wage rates of labor, transport costs, tax rates, etc.
DEFINITION AND INTRODUCTION OF
GOVERNMENT INTERVENTION IN
MARKET

BY KUDARAT THAKOR-383
*DEFINITION AND INTRODUCTION OF GOVERNMENT
INTERVENTION IN MARKET
 DEFINITION
 Government intervention is regulatory action taken by government that
seek to change the decision made by individuals, groups and organization
about social and economic matters.

 INTRODUCTION
 In the 18th and 19th centuries, famous economists such as David Ricardo
and Adam Smith agreed to the existence of an invisible force within the
market. Markets only relied on deciding prices for the supply production
and resource allocations. Their decisions were usually based on self-
interest only. They did not require any active government interventions in
the market and which was not in favour for the of consumers

 Gradually with the passage of time, many complications started forming

while handling smooth functioning of markets. The major problem was of
scarcity of resources which were in high demand and the high prices of
supply. To eliminate this complications, the economists and other
professionals emphasized on the government intervention to control
REASONS OF GOVERNMENT
INTERVENTION IN MARKET FOR SUPPLY

BY SPANDAN THAKKAR-381
*REASONS OF GOVERNMENT INTERVENTION IN MARKET
FOR SUPPLY
 MONOPOLY POWER
 In a free market, firms can gain monopoly power to charge high prices to
consumers on the products and monopoly power to pay lower wages to
the workers. This increases inequality and deadweight welfare loss to the
consumers

 So to eliminate this reason government intervention to limit mergers and

monopoly power from the firms can lead to increased economic welfare
and the exploitation of the consumer & workers can be stopped
 LACK OF INCENTIVES
 In the free market, individuals use to make profit incentive on
the products and to cut costs due to which the consumers use to
face high prices. So after that the need of government
intervention arises and the making of profit incentive was
eliminated which also stopped the exploitation of consumers.

 PREVENT MARKET SWINGS

 Market is dynamic in nature. Market fluctuations are

unpredictable and inevitable. No individual or group of
individuals can ever prevent fluctuations or swings in market
which keeps on affecting on the supply as well. Fluctuations also
leads to high prices and lack of supply due to which the consumer
faces many problems. However, government can help prevent
market swings and fluctuations from getting worse. Involvement
of government keeps market on a balanced track and prevents
people from experiencing extreme recessions.
  REGULATE LEGAL AND SOCIAL FRAMEWORK
 The government helps ensuring the legal contracts which are
implemented through a proper law regulatory body. This will
help in the accountability purpose for all the business persons
involved in a firm for the supply production. It also ensures that
when the consumer demands something, there are some rights
involved in it which are favourable for the consumers and with
the proper law the demand of the product increases so it affect
the supply of the product which benefits the market also

 ELIMINATE MARKET FAILURE

 Exploitation of market by industries is one of the pressing

problems of modern world. It is impossible to stop
unfriendly activities of industries in a free market. However,
if government intervenes in economy, such deeds can be
controlled and environmental pollution can be abolished.
This way, a major market failure can be eliminated with the
help of intervention of government.
PROS AND CONS

BY DHAIRYA TRIVEDI-390
PROS ANDPROS CONS
CONS OF GOVERNMENT INTERVENTION
 Provide public goods (e.g. law and order) not
supplied in free market.
 Provide merit goods (education, health)
underprovided in free market.
 Reduce inequality and poverty through tax and
benefit system.
 Gov’t regulations can protect environment,
workers and consumers.
 Protect long-term interests of environment.
 Limit monopoly power.
 Government failure- poor information time
lags.
 Lack of incentives to be efficient in the public
sector.
 Government influenced by powerful pressure
groups.
 Disincentive effects of higher taxes.
 Disincentive effects of welfare programmes
 Government ownership may lead to less
choices.
GOVERNMENT INTERVENTION IS
HELPFUL AND NECESSARY FOR MARKET

BY YATNA TIMANIYA-387
*GOVERNMENT INTERVENTION IS HELPFUL AND
NECESSARY FOR MARKET

 There are many advantages of government intervention such as even income distribution, no
social injustice , secured public goods and services, property rights and welfare opportunities
for those who cannot afford. Although it is a very rare situation a market economy may have
little or on governmental control, but such an economy is then based on supply and demand
forces . It is know as a ‘free market economy’. All business entities are operating solely for
there own self-interest and profit gains. There may be a unfair income distribution among
residents, social injustice among social classes, concern regarding public institutions and lack
of welfare facilities.
 There are market –enabling institutions which help economic agents to manage conflicts ,
to secure property rights and to help in recognizing their own rights and duties towards
customers . They help in sticking to long term contracts and avoid any kind of disputes.
CONCLUSION

BY TULSI THAKKAR-382
 *CONCLUSION OF GOVERNMENT INTERVENTION IN
MARKET
 Government’s intervention in the distribution of essential commodities like food grains has
become a regular feature of Indian economy. The primary objective of such intervention has
been to ensure regular and equitable distribution of food grains specially among the vulnerable
sections of society. Structural change in India has necessitated the need for protecting the poor
from the rise in prices of essential commodities There has been no such society in the history of
mankind where there was complete absence of state interventions. Even in the cases of most
extreme open-minded and liberal economists, they have accepted at some points that there
needs to be government 's intervention may be permissible . This concludes that intervention is
necessary.
 We remain neutral on government intervention in the market. This is
because government interventions in the markets have both advantage
and disadvantage.

 Setting price ceiling and price floor is ensure producer and consumer
would allow to earn profit or buy the goods. Although setting price
control will make market distortions, government can analysis the
market and utilize the price control effectively. When setting the price
control, government must strengthening economic management to
reduce the problem such as black market.

 For subsidy, it only can support the industry in short run because in
long run the small scale firm would get the benefit and it will become
an extra profit for large scale firm. Beside this, subsidy in long run also
will have corruption. So we feel that subsidy only suitable implement
in short run.

 Lastly, tax is an important income of each country. So government

allows charging tax on every products or services. If government
prevents their national to purchase some unhealthy product, they may
charge higher tax on it. For other goods and services, government
should charge lower tax on it because lower tax will have higher
economic grow.