Loyola School

ECONOMICS
PROJECT

DATE: 26th DECEMBER 2021

NAME: RYAN JACOB

MATHEW

SUBJECT: ECONOMICS

CLASS: 12 E
 Acknowledgements

I would like to express my sincere gratitude to

everyone has extended their help in order to complete
this project. Especially, my teacher, Asha S. who not
only gave me the golden opportunity to do this project
but also for her guidance throughout the completion
of my work. It has helped me to delve into the various
aspects of the respective topics on which I have done
this project. I would also like to thank my parents and
friends who helped me immensely in bringing this
project to its fruitful completion.
 Contents
Headings Pg. No

o Introduction 4

o Statement of Problem 4

o Methodology 5

o Scope of the study 5

o Objective 5

o Limitation 5

o Theoretical Framework 6 - 21

o Findings 22

o Conclusion 22

o Bibliography 22

Introduction
The subject of economics can be discussed by one on different magnitudes, either
we can deal with it on a smaller level in the form of microeconomics or on a much
larger scale, macroeconomics.
Macroeconomics deals with the study of
the behavior of the aggregate economy
which are affected by the economic
output, unemployment rates inflation
etc. However, microeconomics is
largely driven by the combined effect of
individual demand and supply. In this
project, supply and the various
components affecting it will be deeply discussed.

Statement of Problem (SOP)

This project deals with the concept of supply. Supply plays a pivotal role
in steering the market to its equilibrium price and also in various other
functions in the market.
For the same reason it is important for one to be acquainted with the
dynamics of how the supply of a product varies when different factors
affecting it are altered so that we are effectively able to predict how the
market behaves.

Methodology

I have acquired the necessary data for the preparation of this project
using secondary data.

Scope of the study

This project's preparation has given me a greater grasp of supply and its
importance in the economy. This study may be useful in identifying
supply determinants, the Law of Supply, and supply elasticity.
Objective

 To study about the characteristics of supply

 To compare the various determinants affecting supply.
 To analyse the elasticity of supply

Limitation

As part of the few shortcomings faced during the preparation of this

document is that we were having a limited timeline to collect data from
different websites about the varied aspects of the company.

Theoretical Framework

Meaning of Supply
So, supply is what a
seller provides to the
market for sale in
order for him to earn
money and for the
buyers to consume the
product according to
their respective
requirements. On a
rather economic
perspective, the
amount of a good or
service that producers are willing and able to give to the market at various prices
over a particular period of time is referred to as supply.
Factors affecting supply
The quantity that the supplier would like to supply to the market changes due to a
variety of factors, where price value
for the product stands as one of the
most important determinants for
supply.

1. PRICE OF THE
COMMODITY

The price of a product is the most important factor affecting its supply, higher
the price, more will the supply of the commodity be. This is because the
producers will be aiming for the increase in their
profit. Higher price also attracts new
players into the market. Product price
and supply have a positive
relationship.

2. GOALS OF THE
PRODUCERS
The firm's goals or ambitions also
influence the supply of a commodity. Typically, most businesses strive to
maximize revenues. Firms' objectives may include 'profit maximization, “sales
maximization,' or 'risk minimization.'

3. COST OF PRODUCTION FACTORS

As various factors of production are used to manufacture a commodity, their
prices will definitely have huge influence on the supply of the respective
commodity. It has an indirect relationship with supply i.e., when the prices of
required inputs rise the supply
for the commodity decreases
and vice versa.

4. PRICE OF RELATED
PRODUCTS
The producers are always capable of shifting their production from one
commodity to another. So, when they see that the price of the related product
increases while that of the given commodity depreciates, they shift to produce
the related product. As a result,

due to the increase in price of the related good, the supply for the given good
decreases while that of the related good.

5. METHODS OF MANUFACTURING
The supply of product alters mostly
due to this factor when there is an
improvement in the technique of
production through the invention
of new machines etc. When method of
production improves, cost of
production reduces and as a result,
raises profit margin.

6. STRUCTURE OF THE MARKET

The kind of market also has an influence on the level of supply for the
commodity. In case of a monopoly, the seller will prefer to restrict the supply
and thus raise prices.

7. TAX POLICIES
Imposing tax on products increase
the cost of production and this
decreases the production and
eventually supply diminishes.
Reduced taxation will have the
opposite effect on supply.

8. EXPECTATION OF
PRICES
 Supply is concerned with the seller’s expectation of market price. If the
producers expect hike in price in future, then they will reduce the level of
supply now in order to sell at a higher price later.

9. NATURAL FACTORS
If production is affected by adverse natural calamities, like draught or
earthquake, there will be less or no
production and a supply in
accordance with that. On the
contrary if it is affected by favorable
factors like adequate rainfall, the
production will increase and supply
will have a direct change.

10. AGREEMENT AMONG SUPPLIERS

Sometimes producers form a group together and take a collective decision to
reduce the market supply, this will cause an artificial scarcity of goods. This is
done in order to increase the price. As a result, supply of the product increases
accordingly.

11. IMPROVEMENT OF TRANSPORT FACILITY

The improvement of transport
facilities opens up area to which the
seller can supply his/ her products.
This motivates the producers to
increase their supply.

Supply Function
A supply function is a statement that demonstrates the link between the
quantity given and the factors that influence it.
Example: - Sn= ƒ (Pn, P1 … Pn-1, Gƒ, Fi…Fm, T, E, Gt, N, Mt …)

Symbol Meaning

Sn quantity supplied of a commodity 'n'

Pn the price of commodity 'n'
P1 … Pn-1 the prices of commodities other than 'n'
Gƒ Goal of the firm
Fi…Fm The expression for prices of different factors of
production
T technique of production
E expectation about future prices
Gt the taxation policy of the government
N expression for the natural factors
Mt Means of transport

Law of Supply
It gives us the relationship between supply of the commodity and its price. It is
also known as supply hypothesis or supply rule.

The law of supply states that, “assuming all other factors remain constant, the
quantity produced and sold increases with
price.”

Here, the law establishes that supply and price

have a direct relationship, wherein, there will
be more supply with more price and less
supply with lower price.

Supply Schedule
It is a tabular statement showing the various quantities of a product which the
sellers are willing to sell at various possible prices at various prices during a given
period of time

Supply schedule can be classified into two categories, namely:

 Individual Supply Schedule- It shows the various amounts of a
commodity that an individual or firm may supply at various prices over a
particular period of time.
  Market Supply Schedule- A market supply schedule for a thing is a table
that illustrates the different amounts of the item that all businesses are
ready to sell at each market price within a certain time period.

INDIVIDUAL SUPPLY
SCHEDULE Price Quantity
INDIVIDUAL SUPPLY
100 25000
SCHEDULE
150 32000
200 40000
250 48000

Price of X QTY QTY MARKET

MARKET SUPPLY SCHEDULE supplied by supplied by SUPPLY
firm 1 firm 2
100 25000 28000 53000
150 32000 36000 68000
200 40000 42000 82000
 Market supply of 250 48000 51000 99000
the commodity is
obtained by taking
the aggregate of all the of the
individual supply in the market.

Supply Curve

A supply curve is a graphical representation of the law of supply. It shows the

same information as a supply schedule. This information, however, is presented
with the aid of a graph rather than numerically. Supply curve follows the same
assumptions as a supply schedule. Supply curves, like supply schedules, come in
two varieties:

 Individual Supply Curve- An individual supply curve is defined as the

curve that depicts the various quantities of a given commodity that an
individual producer is willing to supply at different prices over a given
 period of time, assuming no change in factors other than the commodity's
own price affecting supply of the commodity.

 Market Supply Curve- It is the graphical representation of the market

supply schedule. It shows the different quantities of a commodity that all
the producers are willing to sell at various possible prices during a
specific period of time.

Explanation of Law of Supply

According to the law of supply, the price of an item and the amount given have a
positive relationship. This is shown by a positively sloping supply curve. This
positive slope of the supply curve can be explained by three factors
o Price Factor (Higher price = Larger Profits)
As a hike in price refers to more profits for the producers. This increases
business funds for the manufacturers and as a result causes an increase in
supply which intern causes the supply curve to slope upwards as the prices rise.

o Rise in Marginal Cost of production

The increase in cost of producers
reduces profit and, in some cases, this
might also mean loss. So, when the
prices rise, the suppliers will increase
level of supply not only to raise the
profit margin, but also in some cases,
to break even and stave off loss.
 o Motivation to other commodity producers
The rise in price will result in more profits to the existing producers, which on
its own

will cause an increase in supply. However, in addition to this, the producers of

other commodities will shift their production to more lucrative products. At
higher prices, more firms are willing to enter the market to produce the
commodity.

Law of Supply Exceptions

In some very specific cases there
are exception to the law of supply,
which means that in these
circumstances, the graph will not
be positively sloping. There are 2
situations where we see an
exception to the law of supply:

I. VERTICAL
SUPPLY CURVE
It is applicable for
commodities whose supply cannot be altered. It is in case of rare items,
artifacts like coins and manuscripts etc. In such cases the supply is fixed
and will never change.
In case of agricultural products, the
producer will only be able to shift the
supply over a long period of time, i.e., the
supply can only be increased after the
harvesting period. The supply curve in this

situation is a vertical line parallel to OY, as indicated by the SS

 curve. A vertical supply curve demonstrates that supply (OQ) remains
constant regardless of price OP1.

II. BACKWARD SLOPING SUPPLY CURVE

The backward slop suggests the reduction in the supply with the increase
in supply. This is seen in case of supply of labour by n worker to the firm
he/she works in.

For example: A worker requires 100 rupees per day. So, when the wage rate
is less than 100, he is willing to work more and sacrifice his leisure time.
But when the wages are more
than 100, he will be willing to
work for a lesser time period
because he would like to utilise
his time more for leisure
activities.

In the graph below, the product

supply is OQ when the price is
OP, but drops to OQ1 when the
price is OP1. As a result, the supply curve slopes downward beyond T.

Movement along supply curve

It is the alteration of the quantity of a commodity supplied as a result of the

variation in its own price while all other factors affecting remain constant.

There are 2 kinds of movement along the supply curve:

 1. Expansion in supply: It is the increase in quantity supplied due to the
increase in the price of the product.
2. Contraction in supply: It is the decrease in quantity supplied which occurs
thorough the decrease in price of the product.

An upward movement along a supply curve is

referred to as "supply expansion," here the level of
supply increases whereas a downward movement
along a supply curve is referred to as "supply
contraction, where the level of supply
depreciates."

The supplied quantity is OQ1 at OP1 pricing. If

the price rises to OP2 prime, the supply rises to
OQ2. However, if the commodity's price falls
below OP3, the quantity supplied falls below
OQ3.

Shift of Supply Curve

This is the alteration of the quantity of a commodity supplied as a result of the

variation in the factors affecting other than its own price such as, such as input
prices, prices of related commodities, and technology used in production

There are 2 kinds of shift in the supply curve:

1. Increase in supply: It refers to the situation wherein the producers increase
the supply of a commodity as a result of the variation o any other factor
affecting supply other than its own price.
2. Decrease in supply: It is the scenario in which producers sell a smaller
quantity at the same price level as a result of other potential factors affecting
supply.
 The right ward shift supply curve indicates increase in supply and leftward shift
implies the decrease in supply.
A shift from S1S1 to S2S2 indicates an increase in supply. Due to
increased supply, producers move from point A1 on S1S1 to point A2
on S2S2.
Producers offer OQ2 instead of OQ1 at OP. A rise in supply OQ1
may also mean a decrease in price for. OP1 The shift from A1 on
S1S1 to

B1 on S2S2 indicates this. This is increase in supply. A decrease in

supply is indicated by a shift from S1S1 to S3S3 in the supply curve.

The amount supplied at OP price

decreases from OQ1 to OQ3 as the
supply curve shifts from point A1
on S1S1 to point A3 on S3S3. A
decrease in supply may also mean a
price increase OP2 for the same
quantity OQ1. In the above figure,
point A1 on S1S1 moves to B2 on
S3S3 denotes decrease in supply.

Elasticity of Supply
According to the law of supply, the price
of a product is proportional to the quantity
supplied. However, the law does not
venture into the question regarding the
level of change in quantity supplied when
there is a change in price. This is explored
through the concept of elasticity of
demand.
Supply is termed as elastic when there is a quick response to the change in price. It
is inelastic when there is little to no change in the supply of the commodity.
Types of elasticity of Supply

1. Perfectly Elastic Supply

If supply is perfectly elastic, it means that any change in price will result in an
infinite

amount of change in quantity. It happens when any amount is supplied at the going
rate but nothing at a lesser rate is supplied.
It means that vendors are prepared to sell an endless number of commodities at the
OP price but nothing at a little lower price. It is uncommon in real life scenarios
but serves as a good measure to compare other degrees of elasticity.
Es = ∞

2 Perfectly Inelastic Supply

While a perfectly inelastic supply is an
extreme example, goods with limited
supply of inputs are likely to feature
highly inelastic supply curves. There is
no supply response to a price change,
regardless of how large. In this case, a
change in price does not affect supply. It
is typically seen in the case of artifacts.
There is only one Mona Lisa in
existence. A larger price will not result in
the re-creation of the Mona Lisa.

Es = 0

2. Unitary Elastic Supply

It happens when the percentage change in
the quantity supplied is exactly equal to
the percentage change in its price. All
straight-line
 supply curves traced through the origin have an elasticity of unity over its
entire length, regardless of slope.
Es = 0

3. Inelastic Supply
When the change in quantity supplied is smaller than the change in price,
supply is inelastic. Supply quantity is less susceptible to price variations in
this instance. The elasticity of inelastic
supply varies from time to time but
always stays less than 1.
Any supply curve that crosses the X-axis
is inelastic.
Es > 1

4. Elastic Supply
When the percentage change in quantity
supplied exceeds the percentage change in price, supply is elastic. The
amount delivered is more susceptible to price variations in this instance.
Similar to inelastic supply, the elasticity varies, however in this

case we see that the elasticity is always above 1.

When graphically expressed, any supply curve crossing the Y axis is elastic
in nature.
Es < 1

Measurement of Elasticity of
Supply
There are two methods to derive the
degree of elasticity mathematically.
o PERCENTAGE METHOD
The percentage approach is
based on the notion of
elasticity, which is defined as
 the ratio of a percentage change in quantity provided to a percentage change
in price.
Formula: % change in quantity supplied / %Percentage change in Price

o GEOMETRIC METHOD
The geometric approach is used to compute supply elasticity at a certain
point on the supply curve. As a result, it's often referred to as the point
method of measuring supply elasticity.

Findings
We get to know the various factors which affect supply with its own price being
the most important determinant. Afterwards we express the
law of supply in the form of supply schedule and supply curve. The differentiation
of the terms movement along and shift in supply curve were discussed. Lastly the
different degrees of elasticity of supply and the two methods of calculation of
elasticity were touched upon.

Conclusion
After the completion of this project, we understand that supply is an integral part in
driving the microenvironment. It serves as an in-detail explanation of different
aspects of supply which further on, helps to have a greater understanding on the
role of supply in a real-life scenario in driving the market price and equilibrium to
its respective equilibrium positions.

Bibliography
The links to websites used for the reference in this project have been given
below.
https://examples.yourdictionary.com/supply-and-demand-examples.html
https://www.toppr.com/guides/business-economics/theory-of-supply/meaning-and-determinants-of-
supply/
https://finance.yahoo.com/news/why-supply-demand-important-economy-110050980.html

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