THEORY OF SUPPLY

PRESENTED BY – MA’AM SHARMA

◦ SUPPLY COMES FROM THE SIDE OF THE PRODUCER
◦ IT IS THE DESIRED QUANTITY WHICH THE PRODUCER IS READY TO OF FERGIE SALE AT THE
GIVEN PRICE DURING THE GIVEN TIME PERIOD
◦ STOCK AND SUPPLY ARE DIFFERENT CONCEPTS
◦ STOCK IS TH TOTAL QUANTITY OF COMMODITY WHICH IS AVAILABLE WITH THE PRODUCER
AT A POINT OF TIME
SUPPLY IS A PART OF STOCK
◦ SUPPLY IS A FLOW CONCEPT STOCK IS NOT
◦ THERE ARE TWO TYPES OF SUPPLY
1. INDIVIDUAL SUPPLY – IT IS THE QUANTITY SUPPLIED BY SINGLE PRODUCER AT THE GIVEN
PRICE DURING THE GIVEN TIME PERIOD
2. MARKET SUPPLY – IT’S THE TOTAL SUPPLY OF A PARTICULAR COMMODITY MADE BY ALL
THE PRODUCERS AT A GIVENPRICE IN THE GIVEN TIME PERIOD
FACTORS INFLUENCING SUPPLY –
◦ PRICE OF THE COMMODITY – PRICE AND SUPPLY OF COMMODITY ARE POSITIVELY RELATED
◦ PRICE OF RELATED GOODS
◦ NUMBER OF FIRMS ARE MORE, MORE WILL BE THE SUPPLY
◦ GOALS OF THE FIRM – MAXIMUM PROFITS MORE SUPPLY AT HIGH PRICE; MAXIMUM SALES
MORE SUPPLY AT LOW PRICE
◦ PRICES OF FACTOR OF PRODUCTION – LESS PRICE, MORE SUPPLY AND VICE VERSA
◦ STATE OF TECHNOLOGY – IMPROVED AND UPGRADED MORE SUPPLIES
◦ FUTURE EXPECTATIONS REGARDING THE PRICE – EXPECTATION OF RISE IN PRICE IN FUTURE
🔮 PRESENT SUPPLY WILL BE LESS AND VICE VERSA
◦ GOVT. POLICIES – MORE TAXES, LESS SUPPLY
- SUBSIDY LEADS TO MORE SUPPLY
◦ ANY FACTOR THAT INCREASE THE COST OF PRODUCTION LEADS TO DECREASE IN SUPPLY,
VICE VERSA.
LAW OF SUPPLY –
◦ IT EXPLAINS RELATION BETWEEN PRICE AND QUANTITY SUPPLIED
◦ THERE’S A POSITIVE RELATION BETWEEN BOTH
◦ OTHER THING REMAINING SAME WHEN THE PRICE OF COMMODITY RISES IT’S SUPPLY
INCREASES AND VICE VERSA
ASSUMPTIONS
1. NO CHANGE OF PRICE OF FACTORS OF PRODUCTION
2. NO CHANGE IN TECHNIQUE
3. GOAL. OF THE FIRM REMAINS THE SAME
4. PRICE OF RELATED GOODS REMAIN CONSTANT
5. NO CHANGE IN PRICE IN NEAR FUTURE
6. GOVT. POLICY REMAINS AS IT IS
SUPPLY SCHEDULE AND SUPPLY CURVE –
◦ TABULAR PRESENTATION OF QUANTITY SUPPLIED AT THE DIFFERENT GIVEN PRICES IS
SUPPLY SCHEDULE
◦ GRAPHIC PRESENTATION OF SUPPLY SCHEDULE IS SUPPLY CURVE
◦ BOTH ARE OF TWO TYPES –
1. INDIVIDUAL SUPPLY SCHEDULE AND CURVE
2. MARKET SUPPLY SCHEDULE AND CURVE
EXCEPTIONS –
◦ ON SOME OF THE COMMODITIES LAW OF SUPPLY MAY NOT HOLD GOOD, THEY ARE
CAKED EXCEOTIONS.
1. AGRICULTURAL OUTPUT – THEY ARE MORE GOVERNED BY NATURAL FACTORS
2. GOODS OF SOCIAL DISTINCTION OR ANTIQUE PIECES
3. PERISHABLE GOODS AS THERE SHELF LIFE IS SHORT
4. WHEN THE PRODUCTION IS OPERATING UNDER DIMINISHING RETURNS OR NEGATIVE
RETURNS
CHANGES IN SUPPLY –
TWO TYPES OF CHANGES IN SUPPY
1. MOVEMENT ALONG SUPPLY CURVE – DUE TO CHANGE IN PRICE OF THE COMMODITY
◦ ALSO CALLED CHANGE IN QUANTITY SUPPLY
◦ EXPLAINED AS CONTRACTING AND EXPANSION OF SUPPLY
◦ EXPANSION WHEN PRICE OF COMMODITY RISES, MOVE UPWARDS ALONG THE CURVE
◦ CONTRACTION WHEN PRICE OF COMMODITY FALLS, MOVE DOWNWARD ALONG THE CURVE
◦ ASSUMPTIONS APPLY
◦ 2. SHIFT IN SUPPLY CURVE –
DUE TO CHANGES IN ASSUMPTION, PRICE OF THE COMMODITY REMAINS SAME
ALSO CALLED CHANGE IN SUPPLY
EXPLAINED AS INCREASE OR DECREASE IN SUPPLY
INCREASE IN SUPPLY DUE TO FAVORABLE CHANGE IN ANY CONCEPT OF ASSUMPTION, SHIFT
RIGHTWARD
DECREASE IN SUPPLY DUE TO UNFAVOURABLE CHANGE IN ASSUMPTION, SHIFT LEFTWARD
TECHNOLOGY, PRICE OF FACTORS OF PRODUCTION, GOVT. POLICIES, ETC BRINGS SHIFT IN SUPPLY
THANKYOU!