DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH

Name : A.Satya Vani Kumari

Designation : Lecturer
Branch : Commercial & Computer Practice
Institute : Govt. Poly. For Women, SURYAPET
Year/Semester :III Year / V Semester
Subject : Business Economics – I
Subject Code : CCP-502
Topic : Markets
Duration : 50 Mts
Sub Topic : Influence of Supply on Price
Teaching Aids : Graphical Representation

CCP-502.62 1
Objectives

On completion of this period you would be able

to :

Explain how Supply affects price in a perfect

competition

CCP-502.62 2
Recap

 In the previous class we have discussed about

how price is determined under Perfect
Competition.

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Influence of Supply on Price
 Supply is greatly influenced by Time element.

 Here time means, the period offered for

changing the quantity supplied.

CCP-502.62 4
Classification of Time Period
There are three time periods

1. Market Period

2. Short Period

3. Long Period

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1. Market Period:

 It is a very short period.

 It is impossible to alter the output during this

period.

 Hence, maximum supply is limited to the

existing stock only.

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 So, in the very short period or Market period,
supply cannot be changed.

 Hence, in this period price is governed by

changes In demand.

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CCP-502.62 8
Observations from Fig.2 :

Supply curve is a vertical straight line as supply is

perfectly inelastic.

 Increase in demand increases price

 Decrease in demand decreases price

 Hence, price in market period is governed by

changes in demand.

CCP-502.62 9
 2. Short Period :

 It is a period during which the supply of the

commodity can be changed to some extent.
 Does not allow changes in fixed factors.
 Variable factors can be changed.
 Supply Curve is elastic to some extent according
to changes in demand.

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Observations from Fig.3 :

 Supply curve is slightly elastic represented by

SPSC.

 When demand increases, supply and price will

increase to some extent.

 When demand decreases, supply and price will

decrease to some extent.

CCP-502.62 12
Long Period :

 It is the sufficient functional period.

 Changes can be made in quantity supplied

according to changes in demand.

 Allows to make changes in both fixed factors

and variable factors.

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 Supply in the long period is elastic.

 Supply in the very long period is perfectly elastic,

means changes in demand are followed by equal
changes in supply.

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CCP-502.62 15
 Observations from Fig.4 :

 Supply Curve is perfectly elastic. Means changes

in demand are followed by equal changes in
supply.Hence price is constant.
 So,long period price is governed by supply force.
 Long run price is also known as Normal price.

CCP-502.62 16
Summary

In the perfectly competitive market,

 In the market period d α p

 In the short period d α 1/s
 In the long period s α p

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Quiz

1.Supply is greatly influenced by which element?

Ans: Time element

2. In the market period which factor influences price.

Ans: Demand

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3. Very short period supply curve is a _____________
Ans: Vertical Straight Line

4.Short Period supply curve is _____________

(Slightly elastic/Perfectly elastic)
Ans: Slightly elastic

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1. Long Period Supply Curve is _____________line
(Vertical / Horizontal)
Ans: Horizontal

6. Long-run price is otherwise known as________

(Market price / Normal price)
Ans: Normal price

CCP-502.62 20
Frequently Asked Questions

3. Explain with graphs how price is influenced by

supply force

5. How supply affects price under perfect

competition?

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