SUPPLY

MEANING OF SUPPLY
Some special features of supply:

1. Supply is a desired quantity: It indicates only the willingness, i.e. how much the firm is willing to sell and
not how much it actually sells.
2. Supply of a commodity does not comprise the entire stock of the commodity: It indicates the quantity
that the firm is willing to bring into the market at a particular price. For example, supply of TV by Samsung
in the market is not the total available stock of TV sets. It is the 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 a commodity is always at
a price because with a change in price, the quantity supplied may also change.
4. Supply is always with respect to a period of time: Supply is the quantity, which the firm is willing to
supply during a specific period of time (a day, a week, a month or a year).

Supply refers to quantity of a commodity that a firm is

willing and able to offer for sale at a given price during
a given period of time.
Supply can be either for a single seller (Individual Supply) or
for all the sellers (Market Supply).

1.Individual Supply refers to quantity of a commodity that an

individual firm is willing 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 able to offer for sale at a given price
during a given period of time.
 SUPPLY AND STOCK
Stock refers to total quantity of a particular commodity that is available with the firm at a particular point of time.
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 @Rs37 per kg, then supply
is 30 tonnes and stock is 50 tonnes.

SUPPLY
(a) Supply refers to different quantities
of a commodity which a producer (or a
firm) is ready to sell at different
possible prices of that commodity.
(b) Supply is a flow concept. It is
measured per unit of time period.
(c) Supply is always related to price of
the commodity.
STOCK
(a) Stock refers to the total quantity of
the commodity available with the
producers for the present or future
sale.
(b) Stock is not a flow concept. It is
measured at a point of time.
(c) Stock is not related to price of the
commodity. It is ‘inventory’ of the firm
related to expected demand.

* Inventory – a complete list of items such as property, goods in stock or the contents of a building.
 DETERMINANTS OF SUPPLY (INDIVIDUAL SUPPLY)
Some of the important factors affecting supply are:

1. Price of the given commodity: Price of a commodity and its supply are directly related. It means, as price
increases, the quantity supplied of the given commodity also rises and vice – versa. It happens because at higher
prices, there are greater chances of making profit. It induces the firm to offer more for sale in the market.

2. Price of other goods: As resources have alternative uses, the quantity supplied of a commodity depends 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 given commodity. As a result, the firm shifts its limited resources from
production of the given commodity to production of other goods.

3. Prices of the factors of production or inputs: Prices of the factors of production or inputs (like labour, capital,
raw material, etc.) used in the process of production constitute the cost of production of the commodity. If the
prices of all or any of these factors or inputs increases, the cost of production also increases. This decreases the
profitability. As a result, seller reduces the supply of the commodity. On the other hand, decrease in prices of
factors of production or inputs, increase the supply due to fall in cost of production and subsequent rise in profit
margin.
4. State of Technology: Technological changes influence the supply of a commodity. Advanced and improved
technology reduces the cost of production, which raises the profit margin. It induces the seller to increase the
supply. However, technological degradation or complex and outdated technology will increase the cost of
production and it will lead to decrease in supply.

5. Government Policy (Taxes and Subsidies): Increase in taxes raises the cost of production and thus, reduces
the supply, due to lower profit margin. On the other hand, tax concessions and subsidies increase the supply as
they make it more profitable for the firms to supply goods.

6. Goals/ Objectives of the firm: Generally, supply of a commodity increases only at higher prices as it fulfils the
objective of profit maximization. However, with change in trend, some firms are willing to supply more even at
those prices, which do not maximise their profits. The objective of such firms is to capture extensive markets and
to enhance their status and prestige.
 DETERMINANTS OF SUPPLY (MARKET SUPPLY)
Market supply is influenced by all the factors affecting individual supply. In addition, it is also affected by the following
factors:

1. 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.

3. Means of transportation and communication – Proper infrastructural development, like improvement in the
means of transportation and communication, help in maintaining adequate supply of the commodity.
 SUPPLY FUNCTION
Supply function shows the functional relationship between quantity supplied for a particular commodity and the
factors influencing it.

Individual Supply Function

Individual supply function refers to the functional relationship between supply and factors affecting the supply of a
commodity.

It is expressed as: S x = f(P x, Po, Pf, St, T, G)

Where,

S x = supply of the given commodity x; P x = Price of the given commodity x;

Po = Price of other goods; Pf = Prices of factors of production;
St = State of technology; T = Taxation policy;
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 a commodity.

It is expressed as: S x = f(P x, Po, Pf, St, T, G, N, F, M)

Where,

S x = supply of the given commodity x; P x = Price of the given commodity x;

Po = Price of other goods; Pf = Prices of factors of production;
St = State of technology; T = Taxation policy;
G = Goals of the firm; N = Number of firms;
F = Future expectation regarding P x ; M = Means of transportation and communication.
 SUPPLY SCHEDULE

Supply schedule is a tabular statement showing various quantities of a

commodity being supplied at various levels of price, during a given
period of time.
Supply schedule is of two types:

1. Individual supply schedule

2. Market supply schedule

 INDIVIDUAL SUPPLY SCHEDULE
Individual supply schedule refers to a tabular statement showing various quantities of a commodity that a producer
is willing to sell at various levels of price, during a given period of time.

PRICE (RS) QUANTITY SUPPLIED

OF GOOD X (UNITS)
1 5
2 10
3 15
4 20
5 25

As seen in the above supply schedule, quantity supplied of commodity X increases with increase in price. The
producer is willing to sell 5 units of X at a price of Re 1. When the price rises to Rs2, supply also rises to 10 units.
 MARKET SUPPLY SCHEDULE
Market supply schedule refers to a tabular statement showing various quantities of a commodity that all the
producers are willing to sell at various levels of price, during a given period of time.

It is obtained by adding all the individual supplies at each and every level of price.
Market supply schedule is expressed as: Sm = SA + SB + ….. where Sm is the market supply and SA + SB + ….. are the
individual supplies of supplier A. supplier B and so on.

As seen in the above table, market supply is obtained by adding the supplies of supplier A and B at different prices.
At price of Re1, market supply is 15 units. When price rises to Rs2, market supply rises to 30 units. So, market
supply schedule also shows the direct relationship between price and quantity supplied.
 SUPPLY CURVE
Supply curve refers to a graphical representation of supply schedule.
It is the locus of all the points showing various quantities of a commodity that a producer is willing to sell at
various levels of price, during a given period of time, assuming no change in other factors.

Supply curves are of two types:

(i) Individual supply curve
(ii) Market supply curve

Individual Supply Curve

Individual supply curve refers to a graphical representation of individual supply

schedule.
E
D
Supply curve in the figure is obtained by plotting the points shown in the table.
C
At each possible price, there is a quantity, which the firm is willing to sell. By joining B
all the points (A to E), we get a curve that slopes upwards. A

The supply curve SS slope upwards due to positive relationship between price and
quantity supplied.
 Market Supply Curve

Market supply curve refers to a graphical representation of market supply schedule.

It is obtained by horizontal summation of individual supply curves.

The points shown in the table are graphically represented in the figure.
SA and SB are the individual supply curves. Market supply curve (SM)
is obtained by horizontal summation of the individual supply curves
(SA and SB).

Market supply curve SM is also positively sloped due to positive relationship

between price and quantity supplied.

Market supply curve is flatter

Market supply curve is flatter than all individual supply curves. It happens
because with a change in price, the proportionate change in market supply
is more than the proportionate change in individual supplies.
 SLOPE OF SUPPLY CURVE
Slope of a curve is defined as the change in the variable on the Y – axis divided 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.

𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑃𝑟𝑖𝑐𝑒 (∆𝑃)

i.e. Slope of Supply Curve = 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 (∆𝑄)

• Due to direct relationship between price and supply, the supply curve slopes upwards. So, slope is positive.
• Slope of supply curve measures the flatness (Smaller price changes lead to larger changes in supply)or
steepness (Larger price changes have smaller impact on supply) of the supply curve. So, it is based on the
absolute change in price and quantity.

Between the two points labeled above, the slope is (6-4)/(6-3), or 2/3.
Note that the slope is positive, as the curve slopes up and right.
Since this supply curve is a straight line, the slope of the curve is the
same at all points.
 LAW OF SUPPLY
Law of Supply states the direct relationship between price and quantity supplied, keeping other factors constant
(ceteris paribus).

ASSUMPTIONS OF LAW OF SUPPLY

While stating Law of Supply, the phrase ‘keeping other factors constant or ceteris paribus’ are used. This
phrase is used to cover the following assumptions on which the law is based:

1. Price of other goods is constant;

2. There is no change in the state of technology;
3. Prices of factors of production remain the same;
4. There is no change in the taxation policy;
5. Goals of the producer remain the same.
Law of Supply can be better understood with the help of the following table
and figure.

The above table 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
the figure, supply curve slopes upwards from left to right, indicating direct
relationship between price and quantity supplied.
 REASONS FOR LAW OF SUPPLY
The main reasons for operation of Law of Supply are:

1. Profit motive – The basic aim of producers, while supplying a commodity, is to secure maximum profits.
When price of a commodity increases, without any changes in costs, it raises their profits. So, producers increase the
supply of the commodity by increasing the production. On the other hand, with fall in prices, supply also decreases
as profit margin decreases at low prices.

2. Change in number of firms – A rise in price induces the prospective producers to enter into the market
to produce the given commodity so as to earn higher profits. Increase in number of firms raises the market supply.
However, as the price starts falling, some firms which do not expect to earn any profits at a low price, either stop the
production or reduce it. It reduces the supply of the given commodity as the number of firms in the market
decreases.

3. Change in stock – When the price of a good increases, the sellers are ready to supply more 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 with a 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 may 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 to sell 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 supply cannot be increased with rise in price due
to shortage of resources.
 MOVEMENT ALONG THE SUPPLY CURVE
(CHANGE IN QUANTITY SUPPLIED)
When quantity supplied of a commodity changes due to change in its own price, keeping other factors constant, it is known as ‘change
in quantity supplied’. It is graphically expressed as a movement along the same supply curve.

There can be either a downward movement (Contraction in supply) or an upward movement (Expansion in supply) along the same
supply curve.

In the above figure, OQ quantity is supplied at the price OP. Change in price leads to an upward or downward movement along the
same supply curve:
Upward Movement – When price rises to OP1, quantity supplied also rises to OQ1 (known as expansion in supply), leading to an
upward movement from A to B along the same supply curve SS.

Downward Movement – Fall in price from OP to OP2, leads to decrease in quantity supplied from OQ to OQ2, leads to decrease in
quantity supplied from OQ to OQ2 (known as contraction in supply), resulting in a downward movement from A to C along the same
supply curve SS.
 EXPANSION IN SUPPLY
Expansion in Supply refers to a rise in the quantity supplied due to increase in price of the commodity, other factors
remaining constant.

• It leads to an upward movement along the same supply curve.

• It is also known as ‘Extension in supply’ or ‘Increase in Quantity Supplied’.

Price (in Rs) Quantity (in units)

20 100
25 150

As seen in given schedule and diagram, quantity supplied rises from 100 units to 150 units, with an increase in price
from Rs20 to Rs25, resulting in an upward movement from A to B, along the same supply curve SS.
 CONTRACTION IN SUPPLY
Contraction in supply refers to a fall in the quantity supplied due to decrease in price of the commodity, other
factors remaining constant.

• It leads to a downward movement along the same supply curve.

• It is also known as ‘Decrease in Quantity Supplied’.

Price (in Rs) Quantity (in units)

20 100
15 70

As seen in given schedule and diagram, quantity supplied falls from 100 units to 70 units, with a decrease in price from
Rs20 to Rs15, resulting in a downward movement from A to B, along the same supply curve SS.
 SHIFT IN SUPPLY CURVE (CHANGE IN SUPPLY)
When supply of a commodity changes due to change in any factor other than the own price of the commodity, it is known as
‘change in supply’. It is graphically expressed as a shift in the supply curve.

Various reasons for shift in supply curve: (i) change in the price of other goods (ii) change in the price of factors of production
(iii) change in the state of technology (iv) change in taxation policy (v) change in objectives of the firm (vi) change in the number of
firms (vii) future expectation of change in price.

In the above figure, supply is OQ1 at the price of OP1. Change in other factors leads to a rightward or leftward shift in the supply
curve:
Rightward Shift – When supply rises from OQ1 to OQ2 (known as increase in supply) at the same price of OP1, it leads to a rightward
shift in supply curve from S1S1 to S2S2.

Leftward Shift – Fall in supply from OQ1 to OQ3 (known as decrease in supply) at the same price of OP1, leads to a leftward shift in
supply curve from S1S1 to S3S3.
 INCREASE IN SUPPLY
Increase in supply refers to a rise in the supply of a commodity caused due to any factor other than the own price
of the commodity.
In this case, supply rises at the same price or supply remains same even to lower price. It leads to a rightward shift in
the supply curve.

Price (in Rs) Supply (in units)

20 100
20 150

As seen in the given schedule and diagram, supply rises from 100 units to 150 units at the same price of Rs20, resulting
in a rightward shift of the supply curve from SS to S1S1.
 DECREASE IN SUPPLY
Decrease in supply refers to a fall in the supply of a commodity caused due to any factor other than the own
price of the commodity.
In this case, supply falls at the same price or supply remains same even at higher price. It leads to a leftward shift in
the supply curve.

Price (in Rs) Supply (in units)

20 100
20 70

As seen in the given schedule and diagram, supply falls from 100 units to 70 units at the same price of Rs20, resulting
in a leftward shift of the supply curve from SS to S1S1.
 EFFECT ON SUPPLY CURVE
(DUE TO CHANGES IN OTHER FACTORS)
The supply curve of a commodity shifts due to a change in any of the factors which were assumed to be 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:

The quantity supplied of the given commodity depends not only on its price, but also on the prices of other goods. ‘Increase’ and
‘decrease’, in prices of other goods shifts the original supply curve of given commodity.

(i) Increase in price of other goods: When prices of other goods rises, then production of such other goods become more
profitable in comparison to the given commodity. As a result, supply falls from oq1 to oq2 at the same price op. It leads to a
leftward shift in the supply curve from S1S1 to S2S2. p

(ii) Decrease in price of other goods: Fall in prices of other goods make production of the given
s2
commodity more profitable and it increases its supply from OQ1 to OQ2 at the same price OP.
It leads to a rightward shift in the supply curve from S1S1 to S2S2. o
S1
q

s1
s2
O
Change in price of factors of production:

(i) Increase in price of factors of production: Rise in price of factors of production increases the
cost of production and reduces the profit margin. As a result, supply falls from oq1 to oq2 at the
same price op. It leads to a leftward shift in the supply curve from S1S1 to S2S2.

(ii) Decrease in price of factors of production: When price of factors of production falls. Cost of
production falls and profit margin rises. It increases the supply from OQ1 to OQ2 at the same
price OP. It leads to a rightward shift in the supply curve from S1S1 to S2S2.

Change in the state of technology:

(i) Degradation of technology: Technological degradation or complex and outdated technology

leads to rise in cost of production and fall in profit margin. the profit margin. It decreases the
supply from oq1 to oq2 at the same price op. As a result, supply curve shifts towards left from
S1S1 to S2S2.

(ii) Upgradation of technology: Advanced and improved technology reduces the cost of
production and raises the profit margin. When price of factors of production falls. Cost of
production falls and profit margin rises. Supply rises from OQ1 to OQ2 at the same
price OP. It leads to a rightward shift in the supply curve from S1S1 to S2S2.
Change in taxation policy
Taxes directly affect the cost of producing a commodity. With a change (increase or decrease) in taxes, supply curve of
the given commodity changes.

(i) Increase in taxes: Rise in taxes increases the cost of production and reduces the profit margin. As a result, supply
falls from oq1 to oq2 at the same price OP. It leads to a leftward shift in the supply curve from S1S1 to S2S2.
[Note: GST is a tax on value addition(a indirect tax used on the supply of goods and services). A rise in GST would raise
the cost of production or the cost of rendering services, thus reducing the profit margin.]

(ii) Decrease in taxes: When taxes fall, cost of production falls and profit margin rises. It increases the supply from
OQ1 to OQ2 at the same price OP1. It leads to a rightward shift in the supply curve from S1S1 to S2S2.
[Note: Subsidy is offered to the producers to increase production of the commodity, when it is economically not viable
for the producers to do so at the existing market price. The resultant loss to the producers (when they are required to
produce more at the existing price) is compensated by way of subsidy. Thus, when subsidy is offered, supply curve of
the commodity shifts to the right.]
Thus,

SUPPLY CURVE SHIFTS TOWARDS RIGHT DUE TO:

1. Decrease in price of other goods

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
8. Improvement in means of transport and communication.

SUPPLY CURVE SHIFTS TOWARDS LEFT DUE TO:

1. Increase in price of other goods

2. Increase in price of factors of production (inputs)
3. Complex and outdated technology
4. Unfavourable taxation policy (increase in taxes)
5. Goal of profit maximization
6. Decrease in number of firms
7. Expectation of rise in prices
8. Poor means of transport and communication.
 PRICE ELASTICITY OF SUPPLY
Price elasticity of supply refers to degree of responsiveness of supply of a commodity with reference to change in
the price of such commodity.

For example, if price elasticity of supply is 2, it means that one percent fall in price leads to 2 percent fall in supply or
one percent rise in price leads to 2 percent rise in supply.

PERCENTAGE METHOD FOR MEASURING PRICE ELASTICITY OF SUPPLY

According to this method, elasticity is measured as the ratio of percentage change in the quantity supplied to
percentage change in the price.

𝑷𝒆𝒓𝒄𝒆𝒏𝒕𝒂𝒈𝒆 𝒄𝒉𝒂𝒏𝒈𝒆 𝒊𝒏 𝒒𝒖𝒂𝒏𝒕𝒊𝒕𝒚 𝒔𝒖𝒑𝒑𝒍𝒊𝒆𝒅

𝑷𝒓𝒊𝒄𝒆 𝒆𝒍𝒂𝒔𝒕𝒊𝒄𝒊𝒕𝒚 𝒐𝒇 𝒔𝒖𝒑𝒑𝒍𝒚 𝑬𝒔 =
𝑷𝒆𝒓𝒄𝒆𝒏𝒕𝒂𝒈𝒆 𝒄𝒉𝒂𝒏𝒈𝒆 𝒊𝒏 𝒑𝒓𝒊𝒄𝒆
Where:
𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑠𝑢𝑝𝑝𝑙𝑖𝑒𝑑 (∆𝑄)
1. Percentage change in quantity supplied = 𝐼𝑛𝑖𝑡𝑖𝑎𝑙 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑠𝑢𝑝𝑝𝑙𝑖𝑒𝑑 (𝑄) × 100
2. Change in quantity (∆𝑄) = New Quantity (Q1) – Initial Quantity (Q)
𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒 (∆𝑃)
3. Percentage change in price = 𝐼𝑛𝑖𝑡𝑖𝑎𝑙 𝑝𝑟𝑖𝑐𝑒 (𝑃) × 100
4. Change in price (∆𝑃) = New price (P1) – Initial price (P)
 PROPORTIONATE METHOD
The percentage method can be converted into the proportionate method.

∆𝑄
𝑄 × 100
𝐸𝑠 =
∆𝑃
𝑃 × 100

∆𝑄
𝑄
𝐸𝑠 =
∆𝑃
𝑃
∆𝑄 𝑃
Elasticity of supply (Proportionate Method) = ∆𝑃 × 𝑄

Where:
Q = Initial quantity supplied
∆𝑄= Change in quantity supplied
P = Initial price
∆𝑃= Change in price
 ELASTICITY IS A ‘UNIT FREE’ MEASURE
The coefficient 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 supplied.

PRICE ELASTICITY OF SUPPLY IS POSITIVE

Elasticity of supply will always have a positive sign because of the direct
relationship between price and quantity supplied.
 KINDS OF ELASTICITIES OF SUPPLY
Depending upon the degree of responsiveness of the quantity supplied to the price change, there are five kinds of price
elasticities of supply:

1. Perfectly elastic supply: When there is an infinite supply at a particular price , then the supply of such a
commodity is said to be perfectly elastic. In such a case 𝐸𝑠 = ∞ and the supply curve is a horizontal straight line
parallel to the X – axis.

Price (in Rs) Supply (in units)

30 100
30 200
30 300

Quantity supplied can be 100, 200 or 300 units at the same price of Rs30. As seen in the diagram, quantity supplied can
be OQ, OQ1 or OQ2 at the same price of OP. It must be noted that perfectly elastic supply is an imaginary situation.
2. Perfectly inelastic supply: When the supply does not change with change in price, then supply for such
a commodity is said to be perfectly inelastic. In such a case, Es = 0 and the supply curve (SS) is a vertical straight line
parallel to the Y – axis.

Price (in Rs) Supply (in units)

20 20
30 20
40 20

Quantity supplied remains same at 20 units, whether the price is Rs20, Rs30 or Rs40. As seen in the diagram, quantity
supplied remains the same at OQs, with change in price from OP2 to OP1 or OP3. It must be noted that perfectly inelastic
supply is an imaginary situation.
3. Highly elastic supply: When percentage change in quantity supplied is more than the percentage
change in price, then supply for such a commodity is said to be highly elastic. In such a case, Es > 1 and the supply curve
has an intercept on the Y – axis.

Price (in Rs) Supply (in units)

10 100
15 200

As seen in the schedule, the quantity supplied rises by 100% due to a 50% rise in price. In the figure, the quantity
supplied rises from OQ to OQ1 with rise in price from OP to OP1. As QQ1 is proportionately more than PP1, elasticity of
supply is more than 1.
(200−100)
[Note: % change in quantity = 100 × 100% = 100%

(15−10) 5
% change in price = × 100% = 10 × 100% = 50% ]
10
4. Less elastic supply: When percentage change in quantity supplied is less than the percentage change in
price, then supply for such a commodity is said to be less elastic. In such a case, Es<1 and the supply curve has an
intercept on the X – axis.

Price (in Rs) Supply (in units)

10 100
15 120

In the table, the quantity supplied rises by 20% due to 50% rise in price. In the given figure, the quantity supplied rises
from OQ to OQ1 with rise in price from OP to OP1. As QQ1 is proportionately less than PP1, elasticity of supply is less than
1.
5. Unitary elastic supply: When percentage change in quantity supplied is equal to percentage change
in price, then supply for such a commodity is said to be unitary elastic. In such a case, Es = 1 and supply curve is a
straight line passing through the origin.

Price (in Rs) Supply (in units)

10 100
15 150

In the above table, the quantity supplied also rises by 50% due to 50% rise in price. In the figure, the quantity supplied
rises from OQ to OQ1 with rise in price from OP to OP1. As QQ1 is proportionately equal to PP1, Es = 1.
* Not required from the point of view of syllabus
 IMPORTANT OBSERVATIONS
1. All the supply curves, which pass through the origin are unitary
elastic:
S7, S8 and S9 are the supply curves of three different commodities. The price elasticity of supply for all 3 curves is
equal to one. Although S7 is steeper and S9 is flatter, but elasticity will be equal to one. It means, any straight line
supply curve, which passes through the origin has unitary elastic supply, irrespective of the angle it makes with the
origin.

Look at the moves from point E to F and from point G to H. In both cases the price increases from 20 to 24 (a 20%
increase). When moving from E to F, the quantity supplied rises from 10 to 12 (a 20% rise). When moving from G to H
the quantity supplied rises from 20 to 24 (a 20% rise). In both cases the percentage change in quantity supplied
is exactly the same as the percentage change in price. This is known as unitary elasticity.
 2. Flatter the curve, more is the elasticity at the point of
intersection:
• In the figure, supply curves SS (flatter curve) and S1S1 (steeper curve) intersect each other at point E.

• At point E, OQ quantity is supplied at the price of OP.

When price falls from OP to OP1, quantity supplied falls from OQ to OQ2 for supply curve SS and from OQ to OQ1 for
supply curve S1S1.

• Now, with the same change in price (PP1), change in supply (QQ2) in case of
Supply curve SS is more than change in supply (QQ1) under supply curve S1S1.

• It means supply is more elastic in case of SS (flatter curve) as compared to S1S1

(steeper curve).
 TIME PERIOD AND SUPPLY
From the point of view of supply, time has been broadly divided in to three periods:

1.Market period (very short period): Market period refers to a

very short period in which the supply 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 parallel to the Y – axis (perfectly inelastic) as shown in the figure.
2. Short period: Short period refers to a period in which output (supply) can be changed by
changing only variable factors.
Supply is less responsive to changes in demand. The supply curve is less elastic as shown in the diagram.

3. Long period: Long period refers to a period in which output (supply) can be changed by
changing all factors of production.

The supply curve is highly elastic as seen in the figure.

FACTORS AFFECTING ELASTICITY OF SUPPLY: * Not required from the point of view of syllabus
1. Nature of the commodity: On the basis of nature, commodities may be classified as perishable goods and durable
goods.
• Durable goods like furniture, TV etc. have elastic supply, as they can be stored and their supply can be changed
according to changes in their prices.
• On the other hand, perishable commodities like vegetables, fruits etc., have inelastic supply, because they
cannot be stored and have to be disposed off within a very short period, irrespective of their prices.
2. Cost of production: If cost of production rises rapidly with increase in output, then there is less incentive to raise the
supply with increase in price. In such cases, supply will be inelastic. However, if cost of production increases slowly
with rise in output, then supply will increase with rise in prices. In this case, supply will be more elastic.
3. Time period: In the market period, supply of a commodity is perfectly inelastic as supply cannot be changed
immediately with change in price. In the short period, supply is relatively less elastic as firm can change the supply
by changing the variable factors. In the long period, supply is more elastic as all the factors can be changed and
supply can be easily adjusted as per changes in price.
4. Technique of production: Supply is generally elastic for commodities, which involve simple techniques of production.
However, supply is inelastic for commodities, which involve complex techniques of production. Output of such goods
cannot be increased with increase in their prices.
5. Nature of the inputs used: Elasticity of supply depends on the nature of inputs used in the process of production. If
raw materials and factors of production are of general nature and are easily available, then supply will be elastic as
supply can be easily changed with change in price. However, if the inputs used are of specific or specialized nature,
then supply is generally inelastic.
6. Natural factors: The commodities, whose production depends on natural factors, such as weather, rain, etc. have
inelastic supply (like in case of wheat, rice, etc.).On the other hand, if production does not depend on natural factors
(like in case of manufactured goods), then supply is elastic.