9

cHAPTER
Supply

LEARNING 0BJECTIVES

Supply 9.9 Shift in Supply Curve (Change in Supply)

Meaningof
9.1 9.10 Movement along Supply Curve Vs Shift
Determinants ofSupply in Supply Curve
9.2 (IndividualSupply)
Supply 9.11 Effect on Supply Curve (Due to Changes
of Market
9.3 Determinants in other Factors)
9.4 SupplyFunction 9.12 Price Elasticity of Supply
9.5 SupplySchedule 9.13 Percentage Method for Measuring Price
9.6 Supply Curve Elasticity of Supply
9.14 Kinds of Elasticities of Supply
9.7 Law of Supply
Supply Curve 9.15 Time Period and Supply
9.8 Movement along the 9.16 Solved Practicals
(Change in Quantity Supplied)

9.1 MEANING OF SUPPLY

Before
Like demand,supply is also expressed as a relationship between price and quantity.features
we proceed with the meaning of supply, it is important to understand some special
of supply:
L Supply is adesired quantity: It indicates only the willingness, i.e., how much the
firm is
willing tosell and not how much it actually sells.
Supply of a commodity does not comprise the entire stock of the commnodity: It
ndicates the quantity that the firm is willing to bring into the market at a particular price.
of TV
emple, supply of TV by Samsung in the market is not the total available stock
S trne quantity, which Samsung is willing to bring into the market for sale.
3 Supply is always expressed with reference to price: Just like demand, supply of acommoditv
aysat a price because with achange in price, the quantity supplied may also change
9.1
 9.2
Introductory Microeconomic: chap

4. Supply is always with respect to a period of time: Supply is the quantity, which
is willing to supply during a specific period of time (a day, a week, a month the firm
or a
Due to this reason, supply is a 'Flow Variable'. year).
Now,supply may be defined as:
Supply refers to quantity of a commodity that afirm is willing and able to offer for sale
given price during a given period of tine. at a
The definition of supply highlights 4 essential elements:
(i) Quantity of a commodity (iii) Price of the commodity
(i1) Willingness to sell (iv) Period of time
Like demand, supply also can be either for a single seller (Individual Supply) or for all a
sellers (Market Supply).
1. Individual Supply refers to quantity of a commodity that an individual firm is wil ing
and able to offer for sale at a given price during a given period of time.
2. Market Supply refers to quantity of a commodity that all the firms are willing and sl.
to offer for sale at a given price during a given period of time.
Supply and Stock
The ternm 'supply' is often confused with 'stock' of the commodity. However, in economics
the two terms are different.
Stock refers to total quantity of a particularcommodity that is available with the firm ata
particular point of time. On the other hand, supply is that part of stock which a producer is
willing to bring in the market for sale. Stock can never be less than the supply. For example, if a
seller has 50 tonnes sugar in his godown and he is willing to sell 30 tonnes @37 per kg, then
supply is 30 tonnes and stock is 50 tonnes.
Supply Vs Stock
S.No. Supply Stock
1. Supply refers to quantity of a commodity that a Stock refers to total quantity of a particular
firm is willing and able to offer for sale at a given commodity that is available with the firm at a
priceduring a given period of time. particular point of time.
2. Supply is a flow Concept as it relates to a period Stock is not a flow concept as it relates to a
of time. particular point of time.
3 Supply is always related to price of the commodity Stock is not related to price of the commodity as t
as it changes with change in price. indicates a fixed quantity.

9.2 DETERMINANTS OFSUPPLY (INDIVIDUAL SUPPLY)

any
There are several important factors that determine supply of a commodity. Achange in
one of thesefactors will result in a change in supply of the commodity.Some of the imporat
factors affecting supply are:
supply ofa
1. Price of the given Commodity: The most important factor determining thedirectly relatel.
commodityis its price. As ageneral rule, price ofa commodity and itssupply aree
 Supply 9.3
Chapter
9

means,asprice
increases,the quantity supplied of the given commodity also rises and
1e-versa.
I| .Ithappenssbecause at higher prices, there are greater chances of making profit.
Iinducesthefirm to offer more for sale in the market.
of price (P)and I can be expressed as: S=f(P). The direct relationship between
(5)isafunction
Supply
supply,known as'Law of Supply, is discuSseddin Section 9.7.
priceand
following determinants are termed as 'other factors' or»factors other than price.
The c Other Goods: As resources have alternative uses, the quantity supplied of a
de
Commoditydepends not only on its price, but also on the prices of other commodities.
Increase in the prices
of other goods makes them more profitable in comparison to the
g7vencommodity.
As a result, the firmshifts its limited resources from production of the
production of other goods.
givencommodityto
Forrexample,increase in the price of other good (say, wheat) will induce the farmer to use
e
land for cultivation of wheat in place of the given commodity (say, rice).
of Production or Inputs: Prices of the factors of production or inputs
Prices of the Factors constitute the
e labour,capital, raw material, etc.) used in the process of production
these factors or inputs
Cost of production of the commodity. If the prices of all or any of profitability. As a
the
increases, the cost of production also increases. This decreases
decrease in prices
result, seller reduces the supply of the commodity. On the other hand,
to fall in cost of production
of factors of production or inputs, increases the supply due
and subsequent rise in profit margin.
machine, labour, etc. When price of one
To make ice-cream, firms need various inputs like cream, sugar,
less profitable and firms supply fewer
or more of these inputs rises, producing ice-creams will become
ice-creams.
supply of a commodity.
4 State of Technology: Technological changes influence the
the profit
Advanced and improved technology reduces the cost of production, which raises
degradation
margin. It induces the seller to increase the supply. However, technological
production and it will lead
Or complex and outdated technology will increase the cost of
todecrease in supply.
Governmnent Policy (Taxes and Subsidies): Increase in taxes raises the cost of production
concessions
nd, thus, reduces the supply, due to lower profit margin. On the other hand, tax
and subsidies increase the supply as they make it more profitable for the firms to supply
goods.
firm: Generally, supply of a commodity increases only at higher
Goal s/Objectives of the
prices as it fulfills the objective of profit maximization. However, with change in trend,
Some firms are willing tosupply more even at those prices, which do not maximise their
profits. The capture extensive markets and to enhance their
objective of such firms is to
status and prestige.
 9.4
Introductory Microeconomie:
Change in Quantity Supplied Vs Change in Supply
1. Change in Quantity Supplied: Whenever supply for the given commodity changes
change in its own price, then such change in supply issknown as "Change int Quantity due to
For example, If supply of Close-Up changes due to change in its own price, then such
supply for Close-Up is known as change in quantity supplied.
Suppl
changeied'in.
2. Change in Supply: Whenever supply for the given commodity changes due to factors otk.
than price, then such change in supply is known as "Change in Supply". For example, If :
of Close-Up changes due to change in price of other goods or due to change in supplyor
technology
due to change in taxation policy, then such change in supply for Close-Up is known as
in supply. change
Test Yourself
ldentify the following as change in quantity supplied or change in supply:
1. The market price of almonds rises. Thus, the quantityy supplied of almonds also increases.
2. The price of oranges decreases, so, the annual production of grapes increases.
3. Automobile workers get a5 percent wage increase and so, the production of automobilee
decreases.
4. Due to fallin price of paper, the production of paper decreases.
(Ans: Change in Quantity Supplied: 1, 4; Change in Supply: 2, 3

9.3 DETERMINANTS OF MARKET SUPPLY

Market supply is influenced by all the factors affecting individual supply. In addition, it is also
affected by the following factors:
A. Number of Firms in the market: When the number of firms in the industry increases,
market supply also increases due to large number of producers producing that commodity.
However, market supply will decrease, if some of the firms start leaving the industry due
to losses.

2: Future Expectation regarding price: If sellers expect a rise in price in near future, then
current market supply will decrease in order to raise the supply in future at higher prices
However, if the sellers fear that the prices will fall in the future, then they will increase the
present supply to avoid losses in future.
s. Means of Transportation and Communication: Properinfrastructural development, ike
improvement in the means of transportation and communication, help inmaintaining
adequate supply of the commodity.
Determinants of Market Supply
1. Price of the given commodity 6. Goals/Objectives of the firm
2. Price of other goods 7. Number of firms
3. Prices of factors of production (inputs)
4.
8. Future expectation regarding price
State of technology 9. Means of transportation and communication
5. Government Policy (Taxation Policy)
 Supply 95
Chapter
g

SUPPLYFUNCTION
94S
demand,the supply of a commodity also depends on anumber of factors. When all the
determinants
Like of supply are put together in the form of afunctional relationship, it is termed
asSuyplyFunction.
functionshows thefunctional relationship between quantity supplied for aparticular
Suyyply andIththe factors influencing it/It can be either with respect to one producer (individual
commodity
function) or to all the producers in the market(market supply function).
supply
functin.
Maidual Supply Function Thee aue tuo types of gupply
Individualsupply function refers to the functional relationship between supply and factors
commodity.
affecting the supply of a
expressed.las: S= f(P, P P S,, T, G)
Itis
Where,
commodity x; P, = Price of given commodity x;
S. =Supply of the given
goods; P, =Prices of factors of production;
P, =Price of other
T =Taxation policy;
S, =State of technology;
G = Goals of the firm.

Market Supply Function

Market supply function refers to the functional relationship between market supply and factors
affecting the market supply of acommodity.|
As discussed before, market supply is affected by all the factors affecting individual supply.
In addition, it is also affected by some other factors like number of firms, future expectations
regarding price and means of transportation and communication.
Market supply function is expressed as:
S,=f (P, P, P, S, T, G, N, F, M)
Where,
$,=Market supply of givencommodity x; P, =Price of the given commodity x;
P = Price of other goods; P, = Prices of factors of production;
S, =State of technology; T = Taxation policy;
G=Goals of the N =Number of firms;
market;
F=Future expectation regarding
M= Means of transportation and communication.
9.5 SUPPLY SCHEDULE
Supply schedule is atabular statement showing öarious quantities of acommodity being
Supplied at various levels of price, during agiven period of time.
Like
1 demand schedule, supply schedule is also of twotypes:
2. Individual supply schedule
Markett supply schedule.
 . period
Introductory
Microeconomics pafnal, price.supply unit. commodity
time. 9.2
of B
quantities of supplier Table u Supply
ie (upits)
Market
given in 3, per
period SJ 15
10= 10+40 55 65
5+ 30
20=
(units) increase 1 ofa price.
0
= 35==
a to of A, of S,
+ 25 40
during rises price given supplier help
various >3masks
x
good quantities
of + +
15 20 +
25
withprice a
price, of at a level of the
supplied 5 15 20 25 increases product during supply with
showing 10
'x. the variousevery
of Schedule When the ofprice, o
levels commodityQuantity and individual schedule Schedule
market):
statemnent x of showing
commodity
2. quantity each 10 20
various Supply levels
25 35 40
of the supply Supply Individual
Supply
(units)
for at Sp+ the
price anyPrice! pahesmanstatement + are
supplies
tabular
at Individual
schedule various in
sell of ata sell Supply S B Market
= market
and
supplied to
a to x willing
'Minimum tabular S
at individual A
9.1:
to willing supply of sell as: t 9.2:
refers Table units
not Schedule(3M)S, of producers:
to expressed
+ Table
quantity S, derivation 10 15 20 25
Individual
Supply
Scheduleis hypothetical 5 is or a
to willing 5
schedule sell producer the and
producer Price' refers
()
Price to all is supply only 2
1 2 3
schedule,
willing 'Reserve are adding
schedule schedule the
4 5 6 the producers market
supply
a a units.
that
are
that shows understand
called Supply there
commodity
is
10 noted
theproducer supply by supply the Price
(3)
Individual
9.1 in to is theobtainedis (Assuming,Py
be S,, and
oftime. seen risesmustprice Market so
on. 1 2 3 4 5
9.6 Table Market
all Market
Where us
This that is
As The alsoIt It Let
Chapter 9 Supply 9.7

Table 9.2, market supply is obtained by adding the supplies of suppliers Aand B
seenin
As
differentprices. At
price of 2, market supply is 15 units. When price rises to 3, market
at risesto 30 units. So, market supply schedule also shows the direct relationship between price
suply
and
quantitysupplied.
Supplied
SupplyVs Quantity
Beforewe proceed1further, ,it is important to understand the difference between supply and quantity
supplied
Supply:Supply refers to different quantities of acommoditythat the producer2;
is ready to sell
supply is 10 units at
at diferent levels of prices. For example, there is a supply of 5 units at?
3and so on. It means, supply describes the behaviour of the firm at every possible price.
2 Quantity Supplied: Quantity supplied refers to a specific quantity, in the supply schedule,
supplied against a specific price. For example, 5 units are supplied at price of 2. The term
'quantity supplied"makes sense only in relation to a particular price.

9.6 SUPPLY CURVE

locus of all the
Supply Curoe refers to a graphicalrepresentation of supply schedule,It is the at various sell
points showing various quantities of a commodity that a producer is willing to
factors.
levels of price, during a given period of time, assuming no change in other
It shows the direct relationship between price and quantity supplied, keeping other factor
constant.
" It can be drawn for any commodity by plotting each combination of the supply
schedule
on a graph.
and
" Like supply schedules, supply curves c¡n also be drawn both for individual producer
for all the producers in the market. So,supply curve is of two types:
) Individual Supply Curve
Ai) Market Supply Curve
Y
Individual Supply Curve Individual Supply Curve SS
Individual supply curve refers to a graphicalrepresentation
of individual supply schedule. 5
(in
?)Price
Supply curve SS in Fig. 9.1 is obtained by plotting the points 4
shown in Table 9.1. Ateach possible price, there is a quantity,
which the firm is willing to sell. By joining all the points 3

(A to E), we get acurve that slopes upwards. 2 A

1
The supply Curve SS slope upwards due to positive relationship
between price and quantity supplied. 5 10 15 20 25
Quantity Supplied (in units)
Fig. 9.1
 9.8
Introductory Microeconomic,
Market Supply Curve
Market suyply curve refers to agraphical representationof market supply schedule/ttisi obtained
by horizontal summation of individual supply curves.
The points shown in Table 9.2 are graphically represented Market Supply Curve
in Fig. 9.2. S, and S are the individual supply curves. 6
Market supply curve (S,) is obtained by horizontal
fi)
Price
summation of the individual supply curves (S,and Sp).
Nale
Market supply curve'S,, is also positivelysloped due to positive/e
relationship between price and quantity supplied. S, is flatter than
2
S and S,
0 hyMarket Supply Curve is Flatter 1
Market supply curve is flatter thaH all individual supply
curves,It happens because with achange in price, the 10 20 30 40 50 60

proportionate change in market supply is more than the, Quantity Supplied (in units)
proportionate change in individual supplies. Due to smaaFia. 9.2
Sme Sa t Se
Slope of Supply Curve
As stated before, slope of a curve is defined as the change in the variable on the Y-axis dËvided
by the change in the variable on the X-axis. So, the slope of the Supply Curve equals the Change
in Price divided by the Change in Quantity.
Ke. Slope of Supply Curve = Change in Price (AP)
Change in Quantity (AQ)
V
Due to direct relationship between price and supply, the supply curve slopes upwards. So,
slope is Positive.
Slope of Supply curve measures the flatness or steepness
of the supply curve. So, it is based on the absolute change
in price and quantity. (in)
Price
10
Let us calculate the slope of supply curve with the help of given
8
diagram:
In the given diagram, when price rises from R4 to 7 8, then
quantity supplied increases from 2 units to 4 units. In such a AQ=2
case, the slope of supply curve willbe:
AP 8-4 o1 2 3 4 5
Slope of Supply Curve = -= 2 Quantity Supplied
AQ 4-2 (in units)
For,"Supplycurve is the rising portion of MC curve', refer Power Booster. Fig. 9.2a

9.7 LAW OF SUPPLY

Economists have studied the behaviour of sellers, just as they have studied the behaviour or
buyers. As aresult of their observations, they have arrived at the law of supply /Law ofsupply
states the direct relationship between price and quantity supplied, keeping other factos
constant (ceteris paribus).
 9 A Supply
Chapter 9.9

theddominantfactoriin determining
supply of acommodity.
As price ofthe commodityof
priceis
increases,
know, there is more supply of that commodity in the market and vice-versa. This behaviour
We
studied under the law of supply.
producersiss

Assumptions of Law Supply

of
the phrase 'keeping other factors
statinglaw of supply, the constant or ceteris paribus' are used.
While
phraseis used
to COver following assumptions on which the law is based:
This
Priceof other
goods is constant;
1.
Thereis changein the state of
no technology:
of,factors of production remain the same;
2.
3: Prices the taxation policy;
4 Thereis no change in SS
remain the same.
Goals ofthe producer
6

can be better understood with the help of 5

Law of supply 9.3: (in
Price
Table 9.3 and Fig.
Table 9.3: Supply Schedule 3

Price (in) Quantity (in units) 2

1
2 10
3 20 X
10 20 30 40 50
4 30
Quantity Supplied (in units)
5 40
6 50 Fig. 9.3

Table 9.3 clearly shows that more and more units of the commodity are being offered for sale
as the price of the commodity is increased. As seen in Fig. 9.3, upply curve SS slope upwards
from left to right, indicating direct relationship between price and quantity supplied.
Important Points about Law of Supply
1. Iinstates the positive relationship between price and quantity supplied, assuming no changes
other factors.

tis aqualitative statement, as it indicates the direction of change in the quantity supplied,
but it does not indicate the magnitude of change.
does not establish any proportional relationship between change in price and the resultant
4.
change in quantity supplied.
Law is One sided as it explains only the effect of change in price on the supply, and not the
effect of change in supply on the
price.
Reasons for Law of
Let us try to Supply
now understand, why the supply of a commodity expands as the price rises. The
main Ireasons for
1. Profit Motive:operation of law of supply are:
The basic aim of producers, while supplying a commodity, is to secure
maximtheirum profits.So, producers increasethe supply of the commodity byincreasing the
raises profits. When price of a commodity increases, without any change in costs, it
 9.10
Introductory Microeconomic:
production. Onthe other hand, with fallin prices, supply also decreases as
decreases at low prices. protit margin
2. Change in Number of Firms: Arise in price induces the prospective producers to ent
into the market to produce the given commodity so as to earn higher profits. Increase :
number of firms raises the market supply. However, as the price starts falling, some firros
which do not expect to earn any profits at a low price, either stop the production or red1c
it. It reduces the supply of the given commodity as the number of firms in the marba
decreases.
3. Change in Stock: When the price ofa good increases, the sellers are ready to supply mor.
goods from their stocks. However, at a relatively lower price, the producers do not release.
big quantities from their stocks. They start increasing their inventories witha view that
price may rise in near future.

Exceptions to Law of Supply

As a general rule, supply curve slopes upwards, showing that quantity supplied rises with a
rise in price. However, in certain cases, positive relationship between supply and price mav
not hold true.

The various exceptions to the law of supply are:

1. Future Expectations: If sellers expect a fall in price in the future, then the law of supply
may not hold true. In this situation, the sellers will be willing tosell more even at a lower
price. However, if they expect the price to rise in the future, they would reduce the supply
of the commodity, in order to supply the commodity later at a high price.
2. Agricultural Goods: The law of supply does not apply to agricultural goods as their
production depends on climatic conditions. If, due to unforeseen changes in weather, the
production of agricultural products is low, then their supply cannot be increased even at
higher prices.
3. Perishable Goods: In case of perishable goods, like vegetables, fruits, etc., sellers will be
ready to sell more even if the prices are falling. It happens because sellers cannot hold
such goods for long.
4. Rare Articles: Rare, artistic and precious articles are also outside the scope of law of supply.
For example, supply of rare articles like painting of Mona Lisa cannot be increased, even
if their prices are increased.
5. Backward Countries: In economically backward countries, production and
be increased with rise in price due to shortage of
supply canot
resources.
9.8 MOVEMENT ALONGTHE SUPPLY CURVE (CHANGE IN QUANTITY SUPPLIED)
When quantity supplied of a commodity changes due to change inits own price, keeping orner
factors constant, it is known as 'change in quantity supplied') lt is graphically expressed ds
movement along the same supply cure.
 9.11
Supply
9
Chapter º
a downward movement (Contractionin supply)
or an upward movement
beeither
can
There along the same supply curve. Let us understand the movement along
Epansion insupply)
curve with the help of
Fig. 9.4:
supply.
the
Movement along the
supply curve Expansion in Supply is shown by an upward
S
movement fromn A to B. Quantityy supplied rises
(in)
Price from OQ to 0Q, due to rise in price from OP to OP,
B Contraction in Supply is shown by downward
GP.
movement from A to C. Quantity supplied falls
P
from 0Q to 0Q, due to fall in price from OP to OP,

X
Q Q,
Quantity Supplied (in units)
Fig. 9.4

supplied at the price of OP. Change in price leads to an upward or

nfig, 9.4, OQquantity is
curve:
downward movement along the same supply
When price rises to OP,quantity supplied also rises to OQ, (known
"Upward Movement: movement from A to B along the same
supply), leading to an upward
as expansion in
supply curve SS. decrease
Movement: On the other hand, fall in price from OP to OP, leads to
Downward in a
supplied from OQ to OQ, (known as contraction in supply), resulting
In quantity
curve SS.
ownward movement from A to Calong the same supply
CHANGE IN QUANTITY SUPPLIED
Occurs due to

Change in Price

Leads to

Movement along the Supply Curve

Or
Either
Downward Movement
Upward Movement
Known as
Known as

Contraction in Supply
Expansion in Supply (due to decrease in
Price)
(due to increase in Price)
 9.12 Introductory Microeconomir
Let us now understand the meaning of Expansion and Contraction in Supply.
Expansion in Supply
) (Epansion inSupply refers toa rise in the quantity supplied dne to increase inprice of th,
commodity,other factors remaining constant. )
Z0 lt leads to an upwardmovement along the same supply curve)Y
3) (lt is also known as 'Extension in Supply' or lncrease in
Quantity Supplied') Iwua n ouc Expansion in Supply
It can be better understood from Table 9.4 and Fig. 9.5. (in)
Price
Table 9.4: Expansion in Supply 25
B
Price (in Quantity (in units)
A
20 100 & 20
25 150
S
As seen in given schedule and diagram, quantity supplied
rises from 100 units to 150 units, with an increase in price 100 150
from ? 20 to 25, resulting in an upward movemernt from Quantity Supplied (in units)
A toB, along the same supply curve SS. Fig. 9.5
Sontraction in Supply
(Contraction insupply refers to afall in the quantity supplied due to decrease in price of the
commodity, other factors remaining constant,)
I t leads to adownward movement along the same
supply curve.)
"(It is also known as 'Decrease in Quantity Supplied') Contraction in Supply
It can be better understood from Table 9.5 and Fig. 9.6.
(in
)Price
Table 9.5: Contraction in Supply
620 A
Price (in Quantity (in units)
20 100
15
15 70

As seen in given schedule and diagram, quantity supplied

falls from 100units to 70units, with a decrease in price from 70 100
20 to 15, resulting in a downward movement from A to Quantity Supplied (in units)
B, along the same supply curve SS. Fig. 9.6
9.9 SHIFT INSUPPLY CURVE (CHANGE IN SUPPLY)
Supply curve is drawn to show the relationship between price and quantity Suppliedofa
commodity, assuming all other factors being constant. However, other factors are boundto
change s0oner or later(A change in one of 'other factors' shifts the supply curve
For example, an increase in tax on a commodity will raise its cost of production. W
Withtall
in profit margin, producers may decrease its supply, even though its market price has not
changed. Such decrease in supply, whose price has not changed, cannot be represented by
 Chapter9 Supply 9.13

originaIsupplycurve. It will lead to ashift in supply curve. When supply of a commodity

any factor other than the own price of the commodity, it is known
the duetochangein
changes supply.Itis graphically expressed as a shift in the supply curve.
s
changein Curve:(i) Changein the price of other goods; (i) Change in the price
Reasonsforr Shift in Supply the
Various (ii) Change in state of technology; (iv) Change in taxation policy: (v) Change
oflactorsofproduction; (vi) Change in the number of firms; (vii) Future expectation of change in price.
objectivesoft the firm;
in understand the concept of shift in supply curve through Fig. 9.7:
noW
Let us
Shift in Supply Curve increase in Supply is shown by rightward shift in
supply curve from SS to S,S,. Supply rises from 0Q to
OQ, due to favourable change in other factors at the
(in)
Price S, same price OP
Decrease in Supply is shown by leftward shift in
supply curve from SS to S,S,. Supply falls from OQ to
OQ, due to unfavourable change in other factors at
the same price OP

Q, Q Q,
Quantity Supplied (in units)
Fig. 9.7
OQ at the price of OP. Change in other factors leads to a rightward or
In Fig. 9.7, supply is
leftward shift in the supply curve: supply) at the
Rightward Shift: When supply rises from OQ to OQ, (known as increase in
"
price of OP, it leads to a rightward shift in supply curve from $S to S,S,.
same
Shift: On the other hand, fall in supply from OQ toOQ, (known as decrease in
Leftward
same price of OP, leads to a leftward shift in supply curve from SS to S,S,.
Supply)at the
CHANGEIN SUPPLY

Occurs due to

Change in Factors other than Price

Leads to

Shift in Supply Curve

Or
Either
Leftward Shift
Rightward Shift
Known as
Known as

Decrease in Supply
Increase in Supply change in
(due to Favourable change in (due to Unfavourable
other factors at the same Price)
other factors at the same Price)
 9.14 Introductory Microeconomics
Decrease in Supply.
Let us now understand the meaning of Increase and
Increase in Supply
(Increase in supply refers to a rise in the supply of a Increase in Supply
commodity causcd due to any factor other than the own
price of the commodity) n this case, supply rises at the same
priceor supply remains same even at lower price. (in
Price
(It leads to arightward shift in the supply curve as seen in )
20
Fig. 9.8. Table 9.6: Increase in Supply
Price (in Supply (in units)
20 100
20 150
100 150
As seen in the given schedule and diagram, supply rises Quantity Supplied (in units)
from 100 units to 150units at the same price of R20, resulting Fig. 9.8
in arightward shift of the supply curve from SS to S,S,.
Decrease in Supply
Decrease in Supply
Decrease in supply refers to a fall in the supply of a S

commodity caused due to any factor other than the own (in
Price
price of the conmodity. Ih thiscase, supply falls at the same
pricedr supply remains same even at higher price.
u 20

(It leads to a leftward shift in the supply curvè as seen in

Fig. 9.9. S
Table 9.7: Decrease in Supply S

Price (in Supply (in units) 70 100

20 100 Quantity Supplied (in units)

20 70 Fig. 9.9
the same
1Alo3Asseen in the given schedule and diagram, supply falls from 100 units to 70 units at
price of 20, resulting in aleftward shift of the supply curve from SS to S,S,.
9.10 MOVEMENT ALONG SUPPLY CURVE Vs SHIFT IN SUPPLY CURVE
Basis Movement along Supply Curve Shift inSupply Curve
Meaning When the quantity supplied changes due When the supply changes due to change
tochange in price, keeping other factors in any factor other than the own price
Constant, it leads to a movement along of the commodity, it leads to a snit n
the supply curve. supply curve.
curve (see
Effect on The movement is along the same supply The shift in the supply
(known as
supply curve curve (see Fig. 9.4) either upward (known Fig. 9.7) is either rightward (known as
as Expansion in supply) or downward Increase in supply) or leftward
(known as Contraction in supply). decrease in supply).
factors,
Reason It occurs due to an increase or decrease in It occurs due to a change in other
inputs, change
the price of the givencommodity. like change in the price of
etc.
in taxes, change in technology
 º Supply 9.15
Chapter
9

Changein
Quantity Supplied Vs Change in Supply
Basis
Change in Quantity Supplied Change in Supply
When the quantity supplied changes due When the supply changes due to change
Meaning to change in price, keeping other factors in any factor other than the own price of
constant, it is known as change in quantity the commodity, it is known as change in
supplied. supply.
It leads to a movement along the It leads to shift in the supply curve (see
Effecton
supplycurve same supply curve (see Fig. 9.4) either Fig. 9.7) either rightward (known as
upward (known as Expansion in supply) Increase in supply) or leftward (known as
or downward (known as Contraction in decrease in supply).
supply).
Reason
It occurs due to an increase or decrease in It occurs due to a change in other factors,
the price of the given commodity. like change in the price of inputs, change
in taxes, change in technology etc.

Expansion in Supply VsIncrease in Supply

Basis Expansion in Supply Increase in Supply
Meaning When the quantity supplied rises due to Increase in supply refers to a rise in the
an increase in the price, keeping other supply of acommodity caused due to
factors constant, it is known as expansion any factor other than the own price of
in supply. the commodity.
Tabular Presentation Price ) Supply (Units) Price ) Supply (Units)
10 100 10 100
12 150 10 150

Effect on There is an upward movement (see There is a rightward shift (see Fig. 9.8) in
supply curve Fig. 9.5) along the same supply curve. the supply curve.
Reason It occurs due to increase in price of the It occurs due to other factors like decrease
given commodity. in the price of inputs, decrease in taxes,
technological upgradation etc.

Contraction in Supply Vs Decrease in Supply

Basis Contraction in Supply Decrease in Supply
Meaning When the quantity supplied falls due Decrease in supply refers to a fall in the
to a decrease in the price, keepingsupply of acommodity caused due to
other factors constant, it is known as any factor other than the own price of
contraction in supply. the commodity.
Tabular Presentation Price () Supply (Units) Price () Supply (Units)
12 150 12 150
10 100 12 100

Effect on supply curve There isSa downward movement (see There is aleftward shift (see Fig. 9.9) in
Fig. 9.6) along the same supply curve. the supply curve.
Reason It occurs due to decrease in price of the It occurs due to other factors like increase
given commodity. in the price of inputs, increase in taxes,
technological degradation etc.
 9.16 Introductory Microeconomics
Test Yourself
decrease or increase in supply.
ldentify the following as expansion, contraction,
(a) Price () Supply (units) (b) Price () Supply (units)
15 16
10 100
15 12
10 140
(c) Price ) Supply (units) (d) Price () Supply (units)
7 90
2 20
7 60
1 15
(e) Price ) Supply (units) (f) Price () Supply (units)
80 100
4 65 7 120

Expansion: (f); Contraction: (), (e); Decrease: (b), (d); Increase: (ol
last
9.11 EFFECT ON SUPPLY CURVE (DUE To CHANGES IN OTHER FACTORS)
As discussed before, the supply curve of a commodity shifts due to a change in any of fhe
factors, which were assumed constant under the law of supply. Let us discuss the effect on
supply curve, when there is a change in other factors:
Change in Prices of other Goods Effect on Supply Curve due to
increase in price of other goods
The quantity supplied of the given commodity
depends not only on its price, but also on the (in
)Price
prices of other goods. 'Increase' and Decrease' Supply curve of given
in prices of other goods shifts the original commodity shift towards
supply curve of given commodity. left from SS to S,S, due to
increase in price of other
, (i) Increase in Price of other goods: goods
When prices of other goods rise,
then production of such other goods Q
X

becomes more profitable in comparison Supply (in units)

to the given commodity. (As a result, Fig. 9.1 0
supplyfallsfrom OQ to OQ, at the same Efect on SupplyCurve due to
price OP/ It tédds to aleftward shift in the decrease in price of other goods
Supply curve from SS to S,S,.)
(in
)Price
orDecrease in Price of othergoods:Fall in
prices of other Supply curve of
given
goods makes
of thegiven commodity moreproduction S commodity shift towards

and it increases its supply profitable)

due
right from SS to S,S,
price of
OQ, at the same price OPItfrom OQ to
leads to a
to decrease in
other goods
rightward shift in the supply curve from
SS to S,S, Q,
X

Supply (in units)

Fig. 9.11
 Supply 9.17
Chapter
9
(Manle
in,Price
Change
of Factors of Production
thefactors of
production forms
Prieof
cost of producing a
or partof the Effect on Supply Curve due to increase
(ommodity.
With a change (increase or in price of factors of production
the.amountpayable to factor
decrease)in (in
)Price
sipplycurve of the commodity
inputs,
alsochanges.
IncreaseinPrice of Factors of Supply curve of given commodity
0.
Productiont Rise inprice offactors shifts tovwards left from SS to S,S.
the cost of due to increase in price of factors of
ofproductionincreases production
production and reduces the profit
marginlAsa result, supply falls
from OQ to OQ,at the same price Supply (in units)
oPlt leads to aleftward shift in the Fig.9.12
supply curve from SS to S,S,.
() Decrease in Price of Factors
Effect on Supply Curve due to decrease in
of Production: When price of price of factors of production

factors of production falls, cost of 3)Pricelún S,

productionfalls
(2
and profit margin
rises, It incYeases the supply from Supply curve of given commodity
0Q to OQ, at the same price OP. shifts towards right from SS to S,S,
It leads to a rightward shift in the due to decrease in price of factors of
production
supply curve from $S to S,S,.
S

Supply (in units)

Fig. 9.13
Change in the State of Technology
Iechnological changes affect the cost of production, which directly influences the supply of
the commodity. Supply increases with technological advancement, whereas, any degradation
of technology reduces the supply. Y Effect on Supply Curve due to
(0 Upgradation of Technology: upgradation of technology
S
Advanced and improved
technology reduces the cost of S

production and raises the profit g Supply curve of given commodity

margin. Supply rises from OQ to g P
shifts towarcs right from SS to S,S,
OQ at the same price OP. It leads due to upgradation of technology
to a rightward shift in the
curve from SS to S,5, supply
Q
Supply (in units)
Fig. 9.14
9.18 Introductory Microeconomics
() Degradation of Technology: Y
Effect on Supply Curve due to
degradation of technology
Technological degradation or
complex and outdated technology
lead to rise in cost of production (in
Price
S

and fall in profit margin. It

decreases the supply from OQ to Supply curve of given
OQ, at the same price OP. As a shifts towards left fromcommodi
SS to Sty
due to
result, supplycurve shifts towards S. degradation of technology
left from SS to S,S,.
X

Supply (in units)

Fig. 9.15

Change in Taxation Policy

Taxes (like Goods and Services Tax or GST) directly affect the cost of producing acomnodit:
With a change (increase or decrease) in taxes, supply curve of the given commodity change
(i) Increase in Taxes: Rise in taxes Effect on Supply Curve due to
increase in Taxes
increases the cost of production
and reduces the profit margin. As
(in)
Price
a result, supply falls from OQto S

OQ, at the same price OP. It leads

to a leftward shift in the supply Supply curve of given commodity
curve from SS to S,S,. shifts towards left from SS to S,S,
due to increase in taxes

S
X

Supply (in units)

(ii) Decrease in Taxes: When taxes
falls, cost of production falls and
profit margin rises. It increases
the supply from OQ to OQ, at
the same price OP. It leads to a
rightward shift in the supply curve
from SS to S,S,
Fig. 9.16
Effect on Supply Curve
due to decrease in Taxes
(in
)Price
S
P Supply curve of given commodity
shifts towards right from SS to S,S,
due to decrease in taxes

Q
Supply (in units)
Fig.9.17
 Supply
Chapter
9 9.19

SupplyCurve
Subsidiesand
Subsidiesarethefinanciall assistance provided by the government to producers to fulfil its social
welflareobjectives.
.Whensubsidies are provided or amount of subsidies is increased by the government, then cost
ofproduction falls and profit margin rises. It induces the producer to increase the supply at the
same price.Ittleads to arightward shift in the supply curve.
. Onthe other hand, when subsidies are taken back or amount of subsidies is decreased by the
qovernment,then cost of production rises which reducesthe profit margin. It forces the
to decreasethe supply at the same price. It leadssto aleftward shift in the supply curve. producer

in
RightwardandILeftward Shift Supply Curve
addition to the mentioned factors, supply curve of the givencommodity also shifts due to
In
changefactors, like change in goals, change in number of firms, etc. Let us have agraphical
review of all the factors, which lead to a rightward shift (Fig. 9.18) and a leftward shift
curve.
Fig. 9.19) in the supply
Y

Supply curve shifts towards right due to:

1. Decrease in price of other goods;
(in
7)
Price
S. 2. Decrease in price of factors of production (inputs);
3. Advanced and improved technology;
4. Favourable taxation policy (decrease in taxes);
5. Goal of sales maximization;
6. Increase in number of firms;
7. Expectation of fall in prices in future;
S, 8. Improvement in means of transport and communication.

Supply (in units)

Fig. 9.18
Supply curve shifts towards left due to:
(in
)Price 1. Increase in price of othergoods;
2. Increase in price of factors of production (inputs):
P
3. Complex and outdated technology;
4. Unfavourable taxation policy (increase in taxes):
5. Goal of profit maximization;
6. Decrease in number of firms;
S,
7. Expectation of rise in prices in future;
8. Poor means of transport and communication.
X
Q
Supply (in units)
Fig.9.19
91
PRICEtis ELASTICITY
Thiof s concept OF SUPPLY
the reaction
the the concept of price elasticityof demand. It pointsout
parallel to
sellers to a particular ch of the commodity. It explains the
Changes in Supply of acommodity, due to agiven changeinthe price of the commodity.
change in the price
quantitative
 9.20
Introductory Microeconormics
(2)(Priceelasticity of suyplyrefers to degree of respgusiveness of supply of acommodi
price of such commodity) For
reference to change in the example, if price elasticity of
perCentsupplrisey iisn
2, it means that one percent fall in price leads to 2 percent fall in supply or one
price leads to 2 percent rise in supply.
i) 9.13(PERCENTAGE METHODEOR MEASURING PRICEI ELASTICITY OF
Like elasticity of demand, the most common method for measuring price elasticity
(E) ispercentage method. This method is also known as 'Proportionate Method' of supply
ESUPPLY
Accordingto this method, elasticityis measured as the ratio of percentage change iin
supplied to percentage change in the price. the quantity
Price Elasticity of Supply (E Percentage Change in Quantity Supplied
Percentage Change in Price
Where:

1. Percentage Change in Quantity Supplied = Change in Quantity Supplied (4Q)

x 100
Initial Quantity Supplied (Q)
Change in Quantity (AQ) = New Quantity (Q,)- Initial Quantity (Q)

3. Percentage Change in Price =Change in Price (AP) x 100

Initial Price (P)
/4. Change in Price (AP) = New Price (P,) - Initial Price (P)
Proportionate Method
The percentage method can also be converted into the
of 1, 2, 3 and 4 in the formula of percentage method, proportionate
we get:
method. Putting the values
AQ x 100

AP
x 100
P

AQ

E
AP

Elasticity of Supply (Proportionate Method) AQ

X

Where:
AP Q
Q=Initial Quantity Supplied
AQ =Change in Quantity Supplied
P = Initial Price
AP = Change in Price )
 Supply 9.21
Chapter
9 A

lustrate
the.ercentage/proportionate method, let us consider an example:
o Suppose, at price ofR 10 per unit, afirm supplies 50 units of
the a commodity. When
Eample:
risesto 12 per
unit, the firm increases the supply to 70 units.
prie vill be calculated as:
the elasticityofsupply
Elasticity of Supply (E) = Percentage Changein Quantity Supplied
Price Percentage Change in Price
Non,
Change in Quantity Supplied (AQ)
Percentagechange in Quantity Supplied = Initial Quantity Supplied (Q) x 100

(70 50) x 1000 = 40%

50

Price Change inPrice (AP) x 100

Percentage change in Initial Price (P)
(12- 10) x 100 = 20%
10
40%
E. =2
20%

Elasticity is a Unit Free' Measure

The coeficient of price elasticity of supply is a pure number and is independent of price and
quantity units. It happens because elasticity considers percentage change in price and quantity
suplied.
Price Elasticity of Supply is Positive
So far, we have seen that the concept of elasticity of supply is similar to the concept of elasticity
of deman1d. However, there is one difference. Elasticity of supply willalways have a positive
sign as against the negative sign of elasticity of demand. It happens because of the direct
relationship between price and quantity supplied.
fot measuring price elasticity of supply by 'Geometric Method, refer Power Booster Section.
Tmp(SM
9.14 KINDS OF ÉLASTICITIES OF sUPPLY
Different commodities respond differently to a given change
1aol23 Perfectly Elastic Supply
in price. (E, = )
quant ity Dependingtouthe
supplied
upon the degree of responsiveness of the
price change, there are five kinds of (in
)Price
price elasticities of supply.
1.
atPerafectly Elastic
P SS
:Supply When there is an infinite supply
particular price and the Supply becomes zero with aslight
Jul n price, then thesupply of such a
commodity is satd to
perfect
urve is a
ly elastic ÇInsuch acase E, = ojand the supply
as shown horizontal straight line parallel to the X-ax1 Q Q
Quantity Supplied (in units)
in Fig. 9.20: Fig. 9.20
 9.22
Introductory Microeconomics
Table 9.8: Perfectly Elastic Supply
Price (in ) Supply (in units)
30 100
30 200
30 300

Quantity supplied can be 100, 200 or 300 units at the same price of 30. As
seen in
diagram, quantity supplied can be OQ or OQ, or OQ, at the same price of OP. IE the
noted that perfectly elastic supply is an imaginary situation. must be
2. Perfectly Inelastic Supply:(When the supply does not change with change
in price, then
Supply for sucha commodity is said to be perfectly inelastic. )
In such a case, E, = 0 and thè supply curve (S5) is a vertical straight line parallel to the
Y-axis/as shown in Fig. 9.21.
Table 9.9: Perfectly Inelastic Supply Perfectly inelastic Supply
(E, =0)
Price Supply (in
)Price
(in ) (in units)
20 20
P
30 20
40 20 P

Quantity supplied remains same at 20 units, whether P

the price is 20, ?30 or40. As seen in the diagram,
quantity supplied remains the same at OQ, with change
in price from OP to OP, or OP,. It must be noted that Quantity Supplied (in units)
perfectly inelastic supply isan imaginarysituation. Fig. 9.21
3. Highly Elastic Supply: When percentage change in quantity supplied is more than the
percentage change in price, thensupply for such acommodity is said to be highly elastic.)
In such a case, E > 1and the supply curve has an intercept on the
Y-axis \as shown
in Fig.9.22.
Table 9.10: Highly Elastic Supply Highly Elastic Supply
Price
(E, > 1)
Supply (in
)Price SS
(in ) (in units)
10 100
15
200
P
As seen in the schedule, the quantity
100% due to a50% rise in price. In Fig. supplied rises by
9,22, the quantity
supplied rises from OQto OQ, with rise in price from
OP to OP,. As QQ, is proportionately more than Q,
PP,, Quantity Supplied (in units)
elasticity of supply is more than 1.
Fig. 9.22
4. Less Elastic Supply: When percentage change in
quantity supplied is less than
percentagechange in price, tlhen supply for such acommodity is saidto be less elastic:J
 Supply 9.23
Chapter
9

andthe supply curve has an intercept

E,< 1
nsuchacase, shownin Fig. 9.23.
X-axis hs
Less ElasticSupply
(E, < 1)
onthe
Table 9.11: Less Elastic Supply (in
)PriceP
SS

Price
Supply
(in units)
(in3)
100
10
200
15
20% due to
Table9.11, the quantity supplied rises by
Fig. 9.23,the quantity supplied rises X

50% risein price. In Q Q,

from OQto OQ, with rise in price from OP to OP,. As Quantity Supplied (in units)
proportionately less than PP,, elasticity of supply Fig. 9.23
Q,isthan 1.
isless
5, Unitary Elastic Supplys/When percentage change in Unitary Elastic Supply
quantity supplied is equal to percentage _aid
change in
to be
(E, =1) SS
rice, then supply for such a commodity is (in
?)Price
zmitary elastic.|In such a case, E. = 1and(supply curve
in
is astraight line passing through the originlas shown
Fig. 9.24.
Table 9.12: Unitary Elastic Supply
Price Supply
(in ) (in units)
Q Q,
10 100
Quantity Supplied (in units)
15 150
Fig. 9.24
In Table 9.12, the quantity supplied also rises by 50% due
to 50% rise in price. In Fig. 9.24, the quantity supplied
rises from OQ to OQ, with rise in price from OP to OP,
As QQ, is proportionately equal to PP, E, =1.
Unitary Elastic Supply
Important Observations Curves (E, = 1)
A
Al thesupply curves, which pass through the origin (in
)Price
are unitary elastic: In Fig. 9.25, A, B and Care the
supply curves of three different commodities. The
price elasticity of supplyfor all 3curves is equal to one.
Although Ais steeper and Cis flatter, but elasticity will
be' equal to one. It means, any straight line supply curve,
which passes through the
origin lhas unitary elastic supply,
Tespective of the angle it makes with the origin. Quantity Supplied (in units)
Fig. 9.25
 9.24
Introductory Microeconomics
2. Flatterthe curve, more isthe Elasticity at the point of intersection: In Fig.
curves SS (flatter curve)and S,S, (steeper curve) intersect each other at point9.E26, supply
Atpoint E, OQ quantity is supplied at the Y Flatter Curve 5S is more elastic as
price of OP.
" When price falls from OP to OP,,quantity
compared to steeper curve S,s,
S, (Steeper Curve)
supplied falls from OQto OQ, for supply (in
)Price s (Flatter Curve)
curve$S and from OQ to OQ, for supply
curve S,S,.
Now, with the same change in price (PP,),
S
change in supply (QQ,) in case of supply
curve SS is more than change in supply S
(QQ)under supply curve S,S,. Q, Q
It means supply is more elastic in case of SS Quantity Supplied (in units)
(flatter curve) as compared to S,S, (steeper curve). Fig. 9.26
Quick Recap-Coefficients ofE,
s,s, (E, =0)
Type Value Description
S,S, (E,> 1)
Perfectly Elastic (E,=oo) Infinite supply at same price
(in
Price S$, (E,=1)
Perfectly (E,= 0) Same supply at allprices S,5,(E,<)
Inelastic
SS (E, =)
Highly Elastic (E,>1) % A in Supply > % A in Price
Less Elastic (E,< 1) %Ain Supply < %Ain Price
Unitary Elastic (E, =1) %Ain Supply =% Ain Price
Quantity Supplied (inunits)
Fig. 9.27
9.15 TIME PERIODAND SUPPLY
The supply of acommodity cannot bechanged overnight.
It takes time to change the supply. From the view point of
Y Supply is perfectly inelastic
supply, time has been broadly divided into three periods: A
invery short period
1. Market Period (Very shortperiod): Market
period
refers to a very short period in which the supply (in
?)Price
cannot be changed in response to the change in
demand. The supply of a commodity takes time to
adjust itself to a change in the demand condition.
So, in the market period, supply is limited, like in
case of perishable goods (vegetables, fruits, milk,
etc.). Therefore, the supply curve is a straight line S
parallel to the Y-axis (perfectly inelastic) as shown Quantity Supplied (in units)
in Fig. 9.28. Fig. 9.28
 Supply 9.25
Chapter

Short period refers to a period in which output (supply) can be changed

ShortPeriod:
2. changingonly variable factors. Supply is less responsiveto changes in demand. The
by curveis less elasticas shown in Fig. 9.29.
supply
LongPeriod:
Long period refers to a period in which output (supply) can be changed by
3.
changingall,factorssof production. Therefore, supply becomes more responsive to change
demand.The supply curve is highly elastic as seen in Fig. 9.30.
in Y
Supply is less elastic Supply is highly
in short period elastic in long period

(
u)d

X X
S
Quantity Supplied (in units) Quantity Supplied (in units)
Fig. 9.29 Fig.9.30
Booster Section.
ForFactors Affecting Elasticity of Supply" refer Power
9.16 SOLVED PRACTICALS
Practicals on Supply Schedule and Supply Function
given below.Derive the market
Example 1. The supply schedule for three firms (X, Yand Z) are
supply schedule:
Firm Y Firm Z
Price () Firm X
7 10
1 5
9 12
2 7
15 18
3 10
20 25
4 15
30 27
5 20

Solution:
Market Supply (units)
Price () Firm X(units) Firm Y(units) Firm Z (units)
1 10 22
5 7
12 28
7 9
3 18 43
10 15
4 60
15 20 25
77
20 30 27

Market Supply =Firm X's supply +Firm Y'ssupply +Firm Z'ssupply