Definitions [6]
Define the term supply.
Supply means the quantity of a commodity offered for sale at a particular price, during a given period of time by the producer.
The term ‘supply’ refers to the quantity of a good that a firm is willing to supply at a particular price during a period of time.
"The law of supply states that the higher the price, the greater the quantity supplied or the lower the price, the smaller the quantity supplied." – Dooley
Define elasticity of supply.
Price elasticity of supply refers to the degree of responsiveness of supply of a commodity in response to a change in the price of that commodity.
Define a relatively inelastic supply.
Supply of a commodity will be said to be inelastic if the percentage change in quantity supplied is less than the percentage change in price.
Define price elasticity of supply.
Price elasticity of supply refers to the degree of responsiveness of supply of a commodity in response to a change in the price of that commodity.
Define a relatively elastic supply.
Supply of a commodity will be said to be elastic if the percentage change in quantity supplied exceeds the percentage change in price (Es > 1).
Formulae [1]
Where:
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P: Price of the commodity
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I: Input prices
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T: Technology
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N: Number of sellers
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G: Government policy
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E: Expectations
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R: Related goods prices
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F: Natural factors
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Tr: Transport/communication
Theorems and Laws [3]
State the law of supply.
The law of supply states that other factors being equal, the quantity of a good supplied increases with an increase in the price level and decreases with a decrease in the price level of a good.
Law of supply states the direct relationship between price and quantity supplied, keeping other factors constant.
The law of supply states that other factors being equal, the quantity of a good supplied increases with an increase in the price level and decreases with a decrease in the price level of a good.
The supply schedule below shows the positive relationship between price and quantity supplied.
| Price (in Rs) | Quantity Supplied |
| 5 | 100 |
| 10 | 200 |
| 15 | 300 |
SS is the supply curve sloping upwards. When the price increases from Rs. 5 to Rs. 15, the quantity supplied also increases from 100 units to 300 units.
Explain the law of supply.
The law of supply shows a direct relationship between the price of a good and the quantity supplied. As the price rises, the quantity supplied also increases. This scenario is represented by an upward-sloping supply curve. This happens mainly due to two reasons:
- Profit Motivation: When the price of a product goes up, the chance of earning more profit also increases (assuming other factors remain the same). This encourages producers to supply more of that product.
- Rising Production Costs: As production increases, the cost of making each additional unit (marginal cost) also rises. So, producers are willing to produce and supply more only if the price is high enough to cover these extra costs.
“Other things being constant, the higher the price of a commodity, more is the quantity supplied; and lower the price of a commodity, less is the quantity supplied.”
In simple words: When the price rises, supply rises; when the price falls, supply falls.
There is a direct relationship between price and quantity supplied.
Symbolically:
Sx = f (Px)
Where:
- S = Supply
- x = Commodity
- f = Function
- P = Price of the commodity
Key Points
- Supply is about "ready to sell", linked to both price and time.
- Supply ≤ Stock.
- Stock is what’s on hand; supply is what’s for sale.
- Law of supply: The Higher the price, higher the supply; lower price, lower supply (if all else stays the same).
- Exceptions: rare items, short periods, perishable goods, some labor markets.
- Supply is always shown using a schedule (table) and a curve (graph).
- Supply schedule shows price and quantity supplied in tabular form
- Assumes other factors constant
- Types: Individual and Market
- Individual supply schedule shows supply of one producer
- Market supply schedule shows total supply of all producers
- Market supply = sum of individual supplies
- Law of supply: Higher price → higher quantity supplied
- Supply curve is graphical form of supply schedule
- Price on Y-axis, quantity on X-axis
- Supply curve slopes upward
- Types: Individual supply curve and Market supply curve
Important Questions [8]
- Explain the law of supply.
- Distinguish between contraction and decrease in supply.
- Identify the elasticity of supply for the following with proper reasoning: Primitive and advanced technology.
- Identify the elasticity of supply for the following with proper reasoning: Short run and long run period.
- Identify the elasticity of supply for the following with proper reasoning: Perishable and durable goods.
- Identify the elasticity of supply for the following with proper reasoning: Nature of the entrepreneurs.
- What is meant by elasticity of supply?
- Identify the elasticity of supply (es) of S1, S2 and S3 supply curves:
Concepts [13]
- Concept of Supply
- Types of Supply
- Determinants Or Factors Governing the Supply
- Determinants of Supply
- Law of Supply
- Concept of Stock
- Distinguish between Stock and Supply
- Why Does the Supply Curve Slopes Upward to the Right
- Movements Along and Shifts in Supply Curve
- Distinction Between Change in Quantity Supplied (Or Movement Along Supply Curve and Change in Supply Or Shift of the Supply Curve)
- Distinction Between Expansion in Supply and Increase in Supply
- Distinction Between Contraction in Supply and Decrease in Supply
- Elasticity of Supply
