Académique Documents
Professionnel Documents
Culture Documents
Baranidharan
Present by
Ee&fa
17 August 2013 2
LAW OF SUPPLY
Law of Supply
Law of Supply- refers to the relationship between price and the quantity of a good or service that firms are willing to produce. The higher the price of the product leads to more supplies and more companies making the product.
Price
As price increases
Supply
Quantity supplied increases
Price
As price falls
Supply
Quantity supplied falls
SUPPLY
Quantity Supplied refers to the amount (quantity) of a good that sellers are willing to make available for sale at alternative prices for a given period.
Price
Law of Supply The law of supply states that,
other things equal, the quantity supplied of a good rises when the price of the good rises.
Faculty of Business and Economics (FBE), The IIPM, New Delhi
$3.00 2.50
10
12
Elasticity of supply
The degree of responsiveness of the quantity of a commodity applied for a small change in its price.
= = 1
Types of elasticity
A)perfect elasticity or infinite elasticity of supply (Es = ) Any quantity can be supplied it a given price and there is no need to increase the price On the other hand the firm can even stop the supply completely. But this situation is not found in the real world and is only a hypothetical case. Curve: the shape of the line is horizontal and parallel to the x-axis
Faculty of Business and Economics (FBE), The IIPM, New Delhi
Quantity supplied
B) perfectly inelasticity supply ((Es = 0) Supply remain constant irrespective of the changes in price. Other words the firm is completely insensitive to the price change. Curve; the shape of the supply curve is a vertical line parallel to the y axis
Faculty of Business and Economics (FBE), The IIPM, New Delhi
price
Quantity supplied
The percentage change in quantity supplied is equal to the percentage change in price
Faculty of Business and Economics (FBE), The IIPM, New Delhi
Unit elasticity
Es = 1
Y S price
Quantity supplied
The elasticity of supply is greater than 1 the supply is said to be elastic. If the price increase by 10% the supply increase by more than 10% Conversely, if the price falls by 10% the supply falls by more than 10%
Faculty of Business and Economics (FBE), The IIPM, New Delhi
Es 1
Y
price
Quantity supplied
The % change in quantity supplied is less than % change in price. Supply is said to be inelasticity.
Faculty of Business and Economics (FBE), The IIPM, New Delhi
price
Quantity supplied
Dr.K.Baranidharan
THANK YOU