SUPPLY

ANALYSIS
UNDER THE GUIDANCE OF PROF. POOJA UDASI
 INDEX
SR.NO PARTICULARS
1. INTRODUCTION.

2. LAW OF SUPPLY.

3. SUPPLY ELASTICITY.

4. ANALYSIS AND IT`S USES FOR MANAGERIAL DECISION MAKING.

5. PRICE OF A PRODUCT UNDER DEMAND AND SUPPLY FORCES.

6. PRICE RESTRICTION.
7. MARKET EQUILIBRIUM.

8. PRICE CEILING & FLOOR.

9. TAX & SUBSIDY.

10. COMPARATIVE STATICS.
11. CONCLUSION.
 Introduction

The law of supply was introduced by Alfred Marshall . In

his book principle of economics published in 1890 . law
explain the producer behavior with reference to change in
price . It explain the functional relation Beth quantity
Supplied and price .
 LAW OF SUPPLY

law of supply state that " other things being constant

the highest the price of commodity , grater is the
quantity Supplied and lower the price of commodity .
Smaller is the quantity supplied .
 Price of orange Supply of orange

10 100

20 200

30 300

40 400

50 500

60 600

It Shows direct relationship between quantity supplied and

price.
Supply curve
Y

Oranges

In this diagram x axis show quantity Supplied and Y Axis

show price . SS is the supply curve which slopes upward
from left to right.
TYPES SUPPLY ELASTICITY.

1.Perfectly elastic supply: This occurs when the quantity of a

good or service that a producer is willing to supply is infinite at
a given price. This means that any increase in the price of the
good or service will result in an infinite increase in the
quantity supplied.
2. Perfectly inelastic supply: This occurs when the quantity
of a good or service that a producer is willing to supply is
fixed at a given price. This means that any change in the
price of the good or service will have no effect on the
quantity supplied.
3. More than Unit Elastic Supply: When the percentage
change in the supply is greater than the percentage change
in price, then the commodity has the price elasticity of
supply greater than 1.
4. Less than Unit Elastic Supply: When the change in the
supply of a commodity is lesser as compared to the change
in its price, we can say that it has a relatively less elastic
supply. In such a case, the price elasticity of supply is less
than 1.
5. Unit elastic supply: This occurs when the percentage
change in the quantity supplied of a good or service is equal
to the percentage change in the price of that good or
service. This means that the supply curve is a straight
diagonal line.
 ANALYSIS AND IT`S USES FOR MANAGERIAL
DECISION MAKING.

Similarly, if a company is considering expanding its

production capacity or entering a new market, it can use
supply elasticity to estimate the likely demand for its
product and make more informed decisions about the
feasibility of the expansion or entry.

Overall, understanding the elasticity of supply can be a

useful tool for managers as they make decisions about
pricing, production, and market strategy.
 APPLICATIONS OF SUPPLY
ANALYSIS IN DECISION MAKING

1.Production planning: By understanding the availability and cost of

raw materials and other inputs, companies can make more informed
decisions about how much to produce and when.

2.Inventory management: Analyzing supply trends and patterns can

help organizations determine how much inventory to keep on hand
and when to order more.

3.Risk management: Understanding the potential disruptions to the

supply chain can help organizations prepare for and mitigate risks
that could impact their operations.
4.Pricing: By analyzing the costs of inputs and the availability of
substitutes, organizations can make more informed decisions about
pricing their products or services.

5.Forecasting demand: By analyzing trends in supply and demand,

businesses can make informed predictions about future demand for
their products or services, which can help guide decision making about
production levels and pricing.
• Price of a product
under demand and
supply force
• The law of supply and demand is a economic
theory that explains how supply and demand
is related to each other and how that
relationship affect the price of good and
services. Its a fundamental economic principal
that when supply exceed demand for a good
or service, price fall. When demand exceed
supply, price tend to rise
1. There is an inverse relationship between
tha supply and price of the good and
services.When demand is unchanged.
If there is an increase in supply for good
and service while demand remain the
same, price tends to falls to a lower
equilibrium Price and a higher equilibrium
quantity of good and services.vice versa.
Price is derived by the interaction of
supply and demand.
• Equilibrium price
In this figure both buyer and seller are willing
to exchange the quality Q at the price P. At this
point supply and demand are in balance or in
equilibrium . At any price below P , the quantity
demanded is greater than the supply
• Change in equilibrium price

when either demand or supply change, the

equilibrium price will change. Fequilibrium good
weather normally increase the supply of grain
and oilseeds, with more product being made
available over a range of price. With no increase
in the quantity of products demanded, there will
be movement along the demand curve to a new
equilibrium price in order to clear the excess
supplies off the market . Consumer will buy
more but only at low price.
Shift In Demand

Likewise a shift in demand due to

changing consumer preferences will also
influence the market price. With no
reduction in Supply the effect on price
results from a movement along the supply
curve to a lower equilibrium price where
supply and demand is once again in
balance.in order for price to increase
producer will have to reduce the quantity.
PRICE RESTRICTION AND
MARKET EQUILIBRIUM
MARKET EQUILIBRIUM

 MARKET EQUILIBRIUM is a market state where the supply

in the market is equal to the demand in the market.
 EQUILIBRIUM PRICE :- The equilibrium price is the price
of a good or service when the supply is equal to the
demand in the market.
 EQUILIBRIUM QUANTITY :- The quantity of the good
which is purchased and sold at this equilibrium price is
called equilibrium quantity
 EQUILIBRIUM BETWEEN DEMAND AND
SUPPLY

Excess Supply

PRICE(Rs.) SUPPLY DEMAND SURPLUS

(UNITS) (UNITS) OR
SHORTAG
E
10 1 5 -4
20 2 4 -2
30 3 3 0
Excess Demand
40 4 2 +2
50 5 1 +4
CHANGES IN MARKET EQUILIBRIUM
 IMPACT OF CHANGE IN DEMAND ON PRICE AND QUANTITY

Impact of increase in Demand on Impact of decrease in Demand

Price and Quantity on Price and Quantity
(P Q ) (P Q )
IMPACT OF CHANGE IN SUPPLY ON
MARKET EQUILIBRIUM

Increase in Supply results in lowering Decrease in Supply results in lowering of

of price and increase in Quantity price and increase in Quantity
EFFECT OF CHANGE IN BOTH DEMAND AND
SUPPLY

Impact on price and quantity when demand Impact on Price and Quantity when demand
increases substantially while supply decreases decreases a little while supply increases
a little substantially
THE EFFECT OF INCREASE IN BOTH DEMAND AND
SUPPLY

Effect of equal increase in both

Demand and Supply
PRICE RESTRICTION
• Price controls are government-mandated minimum or maximum prices set for
specific goods and services.
• Price controls are put in place to manage the affordability of goods and
services on the market.
 Pros :
• Protects consumers by eliminating price gouging
• Helps producers remain competitive and profitable
• Eliminates monopolies
 Cons:
• Can lead to shortages and illegal markets
• May create excess demand or excess supply
• Often result in losses for producers and a drop in quality of products and
services
 PRICE CEILING AND PRICE FLOOR

Price Ceiling Price Floor

Definition
It is a mechanism of price control where the price for It is a method of price control where the price of a
a good is prevented from rising above a certain level good is prevented from falling below a certain level

When it becomes effective

Price ceiling becomes effective when it is set below Price floor becomes effective when it is set at above
the equilibrium price the equilibrium price

Impact on market
It causes shortage of goods in the market It causes an excess or surplus of goods in the market

Example
Rent control is one of the most prominent examples of Minimum wages is regarded as one of the commonly
price ceiling used examples of price floor.
 COMPARATIVE STATICS

In economics, comparative statics is a tool used to compare the

equilibrium states of a system under different conditions. It is used to
analyze how changes in certain variables affect the equilibrium of a
system. For example, comparative statics might be used to study how
an increase in the price of a good affects the quantity of the good
demanded by consumers. The goal of comparative statics is to
understand how the equilibrium of a system changes as certain
variables are altered.
 IMOPRTANCE OF COMPARATIVE
STATICS

1.Comparative statics allows economists to understand how changes

in certain variables affect the equilibrium of a system. This
understanding can be used to make predictions about how markets
will respond to changes in policy or other exogenous shocks.

2.Comparative statics is used to evaluate the welfare implications of

policy changes, as it allows economists to quantify the effects of those
changes on the allocation of resources within an economy.
3.Comparative statics can be used to inform the design of policy
interventions, as it allows policymakers to understand the potential
consequences of different policy options.

4.Comparative statics is an important tool for analyzing and

understanding the behavior of economic systems.

5. Comparative statics is a widely used method in economics, and its

insights are important for policymakers, businesses, and individuals
who want to understand the impacts of changes in economic
variables on market outcomes.
 CONCLUSION

The conclusion of a supply analysis in economics is that the quantity of

a good or service that a firm is willing to produce and sell is generally
directly related to the price of that good or service, and is influenced by
factors such as the cost of production, changes in the factors of
production, and market structure. The specific conclusions of a supply
analysis will depend on the context and questions being addressed.