Supply

Supply means the quantity of a commodity that its producers or sellers offer for sale at a given time at a given price. Market supply is the sum of supplies of a commodity made by all individual firms or their supply agencies.

Law of Supply
The law of supply states that quantity supplied is positively related to price. Other things remaining the same as the price of a commodity rises, its supply is extended and as the price falls, its supply is contracted.

Supply Function
It is a mathematical statement which states the relationship between the quantity supplied of a commodity and the factors affecting its supply. S=f (Pn , Pf ,T,G, S)
Pn =Price of a commodity Pf = price of factor inputs. T= Technology G= Government Policy S= Nature and size of the Industry.

Factors affecting Supply/ Determinants of Supply

(i) Change in Input Prices (ii) Technological Progress (iii) Price of product substitutes (iv) Nature and size of the Industry (v) Government Policy (vi) Non- Economic Factors.

Changes in Supply

Change in supply Increase and Decrease in Supply Extension and Contraction in Supply

Change in Supply
Extension and Contraction Increase and Decrease

When quantity supplied changes due to change in price, it is called extension or contraction of supply curve. Characterized by upward or downward movement along the supply curve.

When supply changes due to change in factors other than price, it is called increase or decrease in the price. Characterized by rightward or leftward shift in the supply curve.

Elasticity of Supply
It is the degree of responsiveness of changes in supply to change in price on the part of seller.

Proportionate changein quantity supplied Es Proportionate changein price Q P Es P Q

Types of Elasticities of Supply

Perfectly elastic Supply Perfectly Inelastic Supply Unit elastic Supply More than unit elastic supply Less than unit elastic supply

Perfectly Elastic Supply

Y

Es =

Perfectly Inelastic Supply

Y S

Es = 0

Unit Elastic Supply

If a, change in the quantity supplied, and a change in the price vary in equal proportion, the ratio will be equal to one and the elasticity of supply will be equal to unity.

Unit Elastic Supply

If the point on the arc supply curve is such that the tangent passes through the origin, the elasticity at the point will also be equal to unity.

Greater than Unity

If the proportionate change in quantity supplied is more than the proportionate change in price, the elasticity is said to be greater than unity. If the supply curve is an arc, then the point on the curve whose tangent cuts the price axis will have elasticity greater than unity.

Greater Than Unity

Less than Unity

When the proportionate change in quantity supplied is less than the proportionate change in price, the elasticity is said to be less than one. The tangent at point C intersects the X-axis at the point d. This means elasticity of supply is less than one.

Less than Unity

Factors of Elasticity of Supply

1. Cost of Production: If cost of production increases slowly with increase in output, supply will be inelastic. If cost increases at a very fast rate, supply will be elastic. 2. Natural Constraints: Some products requires specific raw materials, soil etc, e.g. cotton requires black soil. Therefore, cotton can be produced only in black soil areas. Thus, supply of cotton will be inelastic.

3. Nature of the commodity: In case of perishable commodity e.g. apples, tomatoes etc., supply will be inelastic. Reasons: Supply cant be increased in a short period of time. These goods cant be stored. In case of durable commodities e.g. computer, car etc. , supply will be elastic. Reason: Excess of durable goods can be produced and stored.