UNIT - II

Supply
SUPPLY ANALYSIS -
What is one of the biggest problems of
agricultural sector?
Lack of irrigation facilities
Farmers lack education
Marginal land holdings

Indian agriculture is totally supply driven and

not demand driven

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SUPPLY -
The quantity offered for sale at a particular
price and during a particular time by the
producer.
THREE elements of supply
1. Quantity supplied
2. Price
3. Period of time

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FACTORS AFFECTING / INFLUENCING/
DETERMINANTS OF SUPPLY
1. Price of the commodity -
2. Price of other commodity Football Vs
volleyball, Price of computer hardware and
supply of software
3. Goal of the firm Profit / Sales maximization
4. Prices of factors of production
5. State of technology Picture tube /panel price
and CTV/LCD price
6. Future expectations regarding the price
7. Natural factors Rainfall, Soil, Climatic
conditions
8. Government policies - Taxes and Subsidies 4
Euro norms for vehicles, Removal of quantitative
restrictions on the trade
REVIEW QUESTION
Factors affecting the supply of Indian software
export services?

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SUPPLY FUNCTION -
It expresses the functional relationship between
the supply of a commodity and its various
determinants

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LAW OF SUPPLY -
Other things being equal, the quantity supplied
of a commodity varies directly with its price.
In other words, when price of a commodity rises,
supply increases and vice-versa.

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SUPPLY SCHEDULE A TABULAR
REPRESENTATION
1. Individual supply schedule Shows individual
quantities of a commodity that a producer is
prepared to sell at various prices
2. Market supply schedule Gives the same
information about the whole market of a given
commodity

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SUPPLY SCHEDULE

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SUPPLY CURVE

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ASSUMPTIONS OF THE LAW -
1. No change in the price of related goods
2. No change in the state of technology
3. No change in the goals of the firm
4. No change in the price of factors of production
5. No change in the expected price of the
commodity by the producer

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WHY DOES SUPPLY CURVE SLOPE
UPWARDS?
1. Law of diminishing marginal productivity
Marginal unit increases cost. So more will be
supplied at higher price
2. Change in stock If price rises, sellers are
ready to sell more from their old stocks
3. Profit and loss If Price rises, supply will
increase and profit will go up
4. Entry and exit of new firms If profit, new
firms will enter and supply will increase

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EXCEPTIONS OF THE LAW
1. Future expectations about change in the price
2. In case of agricultural goods
3. In case of perishable goods
4. Goods of auction
5. In case of rare goods Ex- Poems, Paintings
6. In case of backward countries

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CHANGES IN SUPPLY -
1. Movements along the same supply curve
2. Shifts in supply curve

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MOVEMENTS ALONG THE SAME SUPPLY
CURVE

When the supply of a commodity changes due

to change in its price, it is reflected by
different points on a supply curve which is
called as movement along the same supply
curve
Types -
1. Other things being equal, when supply of a
commodity expands due to rise in its price, it
is called extension of supply
2. Other things being equal, when the supply of
a commodity falls a result of fall in its price,15
it is called contraction of supply
SHIFTS IN SUPPLY CURVE -
When the supply of a commodity changes due
to the factors other than the price, it is called
change / shift in supply.
Types
1. When more quantity is supplies at the same
price, the situation is called as increase in
supply
2. When less quantity is supplied at the same
price , the situation is called as decrease in
supply
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CHANGE IN SUPPLY VS. CHANGE IN
QUANTITY SUPPLIED

Change in supply Change in quantity supplied

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REVIEW QUESTION
A company produces steel almirahs of a given
type, dimension and quality. The market price of
steel rises by 20 per cent. Illustrate how this
would affect the companys supply curve of
almirahs?

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