S U P P L Y

A N A L Y S I S
 SUPPLY ANALYSIS

• Supply can be defined as the quantity of a

product that a seller is willing to offer in the
market at a particular price within specific
time.

• Supply is referred in terms of time.

• Supply considers the stock and market

price of the product.

• Supply is always referred in terms of price.

2 types of supply
Individual Supply - is
C O N C E P goods
the quantity of goods
a single producer is
willing to supply at a
particular price and
time in the market.
Market Supply - market
supply is the quantity of
T supplied by all
firms in the market
during a specific time
period and at a
particular price. Market
supply is also known as
industry supply as firms
collectively constitute
an industry.
Determinants of Supply
 Price of a product: The major determinant
of the supply of a product is its price.
 Cost of production: It is the cost incurred on
the manufacturing of goods that are to be
offered to consumers.
 Natural conditions: The supply of certain
products is directly influenced by climatic
conditions.
 Transportation conditions: Better transport
facilities result in an increase in the supply
of goods. Transport is always a constraint
 Taxation policies: Government’s tax
policies also act as a regulating force in
supply.
Law of Supply
 The law of supply explains the relationship between
price and supply of a product. According to the
law, the quantity supplied increases with a rise in
the price of a product and vice versa while other
CHEAP
AFFORDABLE SUITABLE
factors are constant. FOR ALL
C O N C E P T
PERSON
 The other factors may include customer
preferences, size of the market, size of population,
etc.

 The law of supply states a direct relationship

between the price of a product and its supply.
Therefore, both price and supply moves in the
same direction.
Supply Schedule
 Supply schedule can be defined as a tabular
representation of the law of supply. It represents the
quantities of a product supplied by a supplier at
different prices and time periods, keeping all other
factors constant.

Individual supply schedule: Market supply schedule:

This schedule represents the This schedule represents the

quantities of a product
supplied by an individual
firm or supplier at different
prices during a specific
period of time, assuming
other factors remain
unchanged.
quantities of a product
supplied by all firms or
suppliers in the market at
different prices during a
specific period of time,
while other factors are
constant.
 S U P P L Y
C U R V E

 The graphical representation of supply schedule is called

supply curve. In a graph, the price of a product is
represented on Y-axis and quantity supplied is
represented on X-axis. Supply curve can be of two types,
individual supply curve and market supply curve.

Individual supply curve: Market Supply curve:

It is the graphical It is the graphical

representation of individual representation of mar-ket
supply schedule. supply schedule.
S U P P L Y F U N C T I O N

 Supply function is the mathematical expression of law of

supply. In other words, supply function quantifies the
relationship between quantity supplied and price of a
product, while keeping the other factors at constant. The
supply function can be expressed as:

Qs = f (Pa, Pb, Pc, T, Tp)

Where,
Qs = Supply
Pa = Price of the good supplied
Pb = Price of other goods
Pc = Price of factor input
T = Technology
Tp = Time Period

 According to supply function, the quantity supplied of a

good (Qs) varies with price of that good (Pa), the price of
other goods (Pb), the price of factor input (Pc),
technology used for production (T), and time period (Tp)
 ASSUMPTIONS OF SUPPLY

• The law of supply also follows the assumption of ceteris

paribus, which means that ‘other things remain unchanged
or constant’. As mentioned earlier, the supply of a
commodity is dependent on many factors other than price,
such as consumers’ income and tastes, price of substitutes,
natural factors, etc.
 ASSUMPTIONS OF SUPPLY

• The law of supply works on certain assumptions which are given as follows:
• Income of buyers and sellers remains unchanged.
• The commodity is measurable and available in small units.
• The tastes and preferences of buyers remain unchanged.
• The cost of all factors of production does not change over a period of time.
• The time period under consideration is short.
• The technology used remains constant.
• The producer is rational
• Natural factors remain stable.
• Expectations of producers and the government policy do not change over a
period of time.
EXCEPTIONS TO LAW OF SUPPLY

 According to the law of supply, if the price of a product

rises, the sup-ply of the product also rises and vice
versa. However, there are certain conditions where the
law of supply is not applicable. These conditions are
known as exceptions to the law of supply. In such
cases, the sup-ply of a product falls with the increase in
the price of a product at a particular point of time.
 The exception to the law of supply is represented on
the regressive supply curve or backward sloping curve.
It is also known as an excep-tional supply curve.
 EXCEPTIONS TO LAW OF SUPPLY

Agricultural products: The law of exception is not applicable to

agricultural products. The production of these products is depen-
dent on so many factors which are uncontrollable, such as climate
and availability of fertile land.

Goods for auction: Auctions goods are offered for sale through
bid-ding. Auction can take place due to various reasons, for
instance, a bank may auction the assets of a customer in case of
his failure in paying off the debts over a period of time.

Expectation of change in prices in the future: Law of supply is not

applicable under the circumstances when there is an expec-
tation of change in the prices of a product in the near future.

Supply of labour: The law of supply fails in the case of labour. After
a certain point, the rise in wages does not increase the supply of
labour.
SHIFTS AND MOVEMENT ALONG SUPPLY CURVE
In economics, like demand, change in quantity
supplied and change in supply are two different
concepts.

Change in quantity supplied

occurs due to rise or fall in Change in supply refers to
product prices while other increase or decrease in the
factors are constant. supply of a product due to
various determinants of supply
other than price (in this case,
price is constant).
SHIFTS AND MOVEMENT ALONG SUPPLY CURVE

 Change in quantity supplied can be measured by

the movement of the supply curve, while change in
supply is measured by shifts in the sup-ply curve. The
terms, change in quantity supplied refers to
expansion or contraction of demand, while change in
supply means increase or decrease in demand. Let us
discuss the expansion and contraction of supply as
well as increase and decrease in supply in the next
sections.
EXPANSION AND CONTRACTION OF SUPPLY

When there are

large quantities of a
good supplied at Contraction of
higher prices, it is supply occurs when
known as expansion smaller quantities of
or extension of goods are supplied
supply. even at reduced
prices.
INCREASE AND DECREASE IN SUPPLY

 An increase in supply takes place when a supplier

is willing to offer large quantities of products in the
market at the same price due to various reasons,
such as improvement in production techniques,
fall in prices of factors of production, and
reduction in taxes.

 A decrease in supply occurs when a supplier is

willing to offer small quantities of products in the
market at the same price due to increase in
taxes, low agricultural production, high costs of
labour, unfavourable weather conditions, etc.
 MARKET EQUILIBRIUM: DEMAND AND SUPPLY
EQUILIBRIUM
• From the discussion so far, it can be concluded that a market system is
driven by two forces, which are demand and supply. This is because
these two forces play a crucial role in determining the price at which a
product is sold in the market. Price is determined by the interaction of
demand and supply in a market.
• According to the economic theory, the price of a product in a market
is determined at a point where the forces of supply and demand
meet. The point where the forces of demand and supply meet is
called equilibrium point. Conceptually, equilibrium means state of rest.
It is a stage where the balance between two opposite functions,
demand and sup-ply, is achieved.
 MARKET EQUILIBRIUM: DEMAND AND SUPPLY
EQUILIBRIUM
• Mathematically, market equilibrium is expressed as:
• Qd (P) = Qs (P)

• Where

• Qd (P) is the quantity demanded at price P

• Qs (P) is the quantity supplied at price P

MARKET EQUILIBRIUM: DEMAND AND SUPPLY
EQUILIBRIUM
Demand and Supply of Fans in Delhi

Price Supply Demand

(` per fan) (‘000 in a month) (‘000 in a month)

600 55 80

650 65 75

700 70 70

750 75 50

it can be observed that at the price of ` 700, the demand and supply of fans is
equal i.e. 70,000 fans. Therefore, market equilibrium exists at 70,000 where
demand and supply are the same.
 DETERMINATION OF MARKET PRICE

• The market equilibrium price of a product is

determined at the point of intersection of demand
and supply. However, it is important to understand
how the price is determined.
 SHIFTS IN MARKET EQUILIBRIUM

• A shift in supply or demand curve also shifts the equilibrium point

• Shift in demand curve (Portray the graph to the audience)

THAT’S ALL FOLKS

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