STOCK SUPPLY

17. STOCK SUPPLY

1. Meaning
Stock refers to entire quantity of a
commodity which is in the custody
of the seller. So it is the potential
supply.

2. Dependence
Stock depends on production.

3. Relationship
Stock can be greater than the
supply.
(a) For perishable commodities the
stock and the supply can be the
same.
(b) For durables commodities, the
stock can be more than the supply.

4. Order of existence
Stock comes before supply


Supply refers to the quantity of a
commodity offered for sale at a
given price and at a given time
and place.


Supply depends on stock and
price.


Supply cannot be greater than
the stock.
(a(a) Supply is either equal or less
than the stock.





Supply follow stock there cannot
be supply without stock.


Meaning: -The law of supply establishes a functional
relationship between the price of a commodity and its
quantity supplied in the market.

Definition: -According to Marshall the law of supply is
defined as Other thing being equal, the quantity of a
commodity supplied is directly related to its price
In other words, more quantity of a commodity is offered
for sale at a higher price and less quantity is offered for
sale at a lower price. So supply of a commodity is
directly related to its price.
Symbolically it can be stated as follows:

Sx = f (Px)

Where, S stands for supply, f stands for function of, P
stands for Price, x stands for a given commodity.

THE LAW CAN BE EXPLAINED WITH THE HELP OF SUPPLY
SCHEDULE AND A DIAGRAM.

SUPPLY SCHEDULE

PRICE (RS.) QUANTITY SUPPLY (IN
KGS)
1
2
3
4
5
10
20
30
40
50


The schedule shows that with an increase in price the
quantity supplied is also increasing. It indicates direct
relationship between the two variables Price and
quantity supplied. When the price is Re. 1 the seller
offers only 10 units for sale. When Price increases
to Rs.5 he expands supply to 50 units.


In the above diagram
X-axis represents quantity supplied and Y-axis
represents price. Various points from the schedule are
plotted on the graph join those points we will be getting
supply curve which is called as named as SS. SS sloped
upward from left to right showing direct relationship
between price and quantity supplied. This happens
when price is more, supply is also more and when price
is less, and supply is also less.

ASSUMPTIONS TO THE LAW OF SUPPLY

The law of supply states that
Other thing being equal, the quantity of a
commodity supplied is directly related to its
price. Therefore, the law of supply is based on the
following assumption.

1. The price of substitutes remains unchanged: -
The law of supply assumes that the price of substitutes
commodities remains unchanged. If the price of
substitute commodities changes, then the law of supply
will not apply.
2. There is no change in cost of production: - It is
assumed that there is no change in the cost of
production. If there is a change in the cost of production,
it may affect the price of the commodity and its supply.
3. There is no change in the technology and
method of production: It is assumed that there is no
change in the technology and method of production. If
there are some changes in the technology and method
of production, they may affect the cost of production,
price and supply of the commodity.
4. Government policies on taxation remain
unchanged: it is also assumed that the government
policies on taxation, especially sales tax, excise duties,
customs duties, etc. remain unchanged. A change in
taxes will affect the price of the commodities and their
supply.
5. Weather and climatic conditions remain
unchanged: -It is assumed that the weather and
climatic condition remain unchanged. For instance,
natural calamities such as flood, drought, cyclone, earth
quakes etc. adversely affect the supply of commodities,
especially agricultural commodities.
6. Transport cost remains unchanged: It is also
assumed that the transport cost remains unchanged.
Transport network is not affected by strikes or hike in
petrol and diesel prices. A change in transport cost
affects the price of the commodities and their supply.
7. No change in promotional activities: -It is
assumed that the promotional activities of the producers
and sellers such as advertising and other sales
promotions activities remain constant.

EXCEPTIONS TO THE LAW OF SUPPLY

1. Anticipation about future price: -If the sellers anticipate
a future rise in price, they may withhold the supply with a
view to earn more profits in the future. Even if the price is
high, sellers are not ready to release the goods in anticipation
of further rise in price, expecting to make huge profits.

2. Labour Supply: -Workers normally prefer leisure after
reaching certain amount of wage level. Therefore, after
reaching that high level of wages, the labour supply will
decline, even if they are offered more wages so, the supply of
labour becomes a backward bending curve, indicating that
initially the supply of labour is directly related to wage, but
after a particular limit of wag level, the supply of labour
becomes inversely related to wage.


3. Need for urgent funds: A businessman may face an
urgent need for funds, and as such he may sell out more goods
even at lower prices. This is an exception to the law of supply
4. Change in Fashion: If some goods become out of fashion,
the sellers may sell such goods at a throw away prices to clear
off these goods. This is also an exception to the law of supply.
5. Perishable goods: the sellers have to dispose of the
perishable goods like meat, fish, fruits, flowers etc., even if
the price falls. They can not wait for longer time for the price
to rise, in order to increase supply.
6. Period of recession: - During recession period the sellers
are forced to sell the goods are low prices. This is because
during recession, the purchasing power of the people is very
low.

EXPLAIN THE RELATIONSHIP BETWEEN TOTAL UTILITY
AND MARGINAL UTILITY


Total utility is the sum of all utilities derived by a
consumer form all units of commodity consumed by him.
Whereas Marginal utility is the addition to the total utility
derived by consuming an extra or additional unit of a
commodity. In other words, marginal utility derived from
the consumption of an additional or extra unit of a
commodity.

The following illustration of a schedule and a diagram
explain the relationship between total utility and Marginal
utility. Let us assume that an individual consumer Mr.
X found of mangoes and start consuming unit of
mangoes in quick successive unit of mangoes.


Units of
mangoes
Total Utility
(T.U)
Marginal
Utility(M.U)
1
2
3
4
5
6
7
10
18
24
28
30
30
28
10
8
6
4
2
0
-2


DIAGRAM



With the help of the Schedule and Diagram we
derives the following three conclusion

1. Mu goes on diminishing as the consumer consumes
more and more units of a commodity. And TU increases
but, at a diminishing rate.
2. There is an inverse relationship between MU and
stock of the commodity i.e. as the stock of the
commodity consumed increases, MU goes on
diminishing.
3. When MU is Zero, TU is the maximum and it is the
point of maximum satisfaction. i.e., point of satiety.
When Mu becomes negative, total utility starts diminishing.
This is the area of dissatisfaction.