Understanding Supply in

Economics
18/02/24
1
 Acknowledgement
I WANT TO CONVEY MY HEARTFELT GRATITUDE TO MY PROFESSORS, FOR THEIR SUPPORT AND
ENCOURAGEMENT DURING THE RESEARCH AND WRITING OF THIS HISTORY PROJECT. THEIR EXPERTISE IN
THE SUBJECT MATTER GREATLY CONTRIBUTED TO THE DEPTH AND QUALITY OF THE PROJECT. ALSO, I
WOULD LIKE TO EXPRESS MY SINCERE GRATITUDE TO THEM, FOR THEIR UNWAVERING SUPPORT AND
ENCOURAGEMENT THROUGHOUT THIS PROJECT. I AM GRATEFUL FOR THE OPPORTUNITY TO HAVE WORKED
ON THIS PROJECT UNDER THEIR GUIDANCE, AND I AM CONFIDENT THAT MY LEARNING AND PERSONAL
GROWTH HAVE BEEN ENRICHED AS A RESULT.

Submitted By:

(1) Astha Mohanty - 231210092

(2) Saswat Misra - 231210093

Section B
(3) Sanskruti Purohit - 231210095
1st Year, 1st Semester
(4) Soumya Priyadarshee Sahu - 231210096
B.Sc (Hons.) Agriculture
(5) Pratikshya Kiran - 231210099
2
Supply is the producer's willingness and
ability to supply a given good at various
price points, holding all else constant.

3
 Why is Supply important in I. Determines Market Dynamics: Supply levels
Economics? in uence market prices, quantities produced, and
consumer choices, shaping the overall economic
landscape.

II. Allocates Resources: Through the interaction of

supply and demand, resources are e ciently
allocated to produce goods and services that meet
consumer preferences.

III. A ects Price Stability: Fluctuations in supply can

impact price stability, leading to in ation or
de ationary pressures, in uencing overall economic
stability.

IV. Drives Production Decisions: Businesses respond

to changes in supply conditions to optimise
production levels, a ecting employment, investment,
and economic growth.

V. Informs Policy Decisions: Policymakers use

insights from supply analysis to develop e ective
regulations and interventions, aiming to achieve
desired economic outcomes such as fostering
competition or stabilising markets.
4
ff
fl
fl
ff
fl
fl
ffi
ff
 Law of Supply
"Other things being equal, as
the price of a good or service
rises, the quantity supplied of
that good or service will
increase, and vice versa, as
the price falls, the quantity
supplied will decrease."

The x-axis shows the quantity supplied

and y-axis shows the price of the good.
5
 Determinants of Supply
1. Price of the Product:
• A higher price leads to a higher quantity supplied and that a
lower price leads to a lower quantity supplied.
2. Cost of Production:
• If the price of fertiliser increases, farmers may reduce their
supply of crops because it becomes more expensive to
produce them.
3. Technological Innovations:
• The development of drought-resistant seeds increases
agricultural productivity, leading to an increase in the
supply of crops even in arid regions.
3. Number of Suppliers:
• When more farmers enter the market for organic produce,
the overall supply of organic vegetables increases.
4. Expectations:
• If farmers expect the price of wheat to increase in the
future, they may reduce their current supply to the market,
expecting to sell at a higher price later.
5. Government Policies:
• Subsidies provided to corn farmers by the government
incentives them to increase corn production, leading to an
increase in the supply of corn.
6. Natural Conditions:
• Severe weather conditions like hurricanes or droughts can
decrease the supply of agricultural products, such as fruits
or vegetables, leading to shortages and price increases.
7. Subsidies and Taxes:
• Government subsidies for renewable energy can increase
the supply of solar panels by lowering production costs for
manufacturers.
8. Changes in the Prices of Related Goods:
• If the price of beef increases, ranchers may shift resources
towards beef production, decreasing the supply of other
meats like chicken or pork.
9. Global Events:
• Political unrest in oil-producing countries can disrupt the
global supply of oil, leading to shortages and price spikes
in oil-importing countries.
6
 Supply vs. Quantity Supplied
Supply Quantity supplied
entire range of quantities of a good or service that producers a speci c amount of a good or service that producers are
are willing and able to o er for sale at di erent prices, holding willing and able to o er for sale at a particular price, at a given
all other factors constant point in time
represented graphically by the supply curve, which shows the represents a single point on the supply curve and changes in
relationship between price and quantity supplied response to changes in price, assuming all other factors
remain constant
change in non-price determinants change in price
shift of entire supply curve movement along the supply curve

Example:
Suppose a bakery is willing and able to produce and sell
various quantities of bread at di erent prices. The supply of
bread represents the entire range of quantities the bakery is
prepared to o er, from a low price to a high price.
Example:
If the market price of bread increases, the bakery may decide
to increase the quantity of bread it o ers for sale. Conversely,
if the price decreases, the bakery may reduce the quantity of
bread it produces and sells. In each case, the quantity
supplied of bread changes in response to a change in price,
while other factors such as production costs or technology
remain unchanged.

7
fi
ff
ff
ff
ff
ff
ff
 Supply Curve
Extension/Contraction Increase/Decrease

It refers to changes in the quantity supplied of a good or service in It refers to changes in the overall supply of a good or service due to
response to changes in its price. factors other than changes in price.

Extension in supply: Contraction in supply: Increase in supply: Decrease in supply:

• occurs when the quantity
supplied increases in
response to a rise in price
• eg, Farmers may produce
more strawberries in response
to an increase in the price of
strawberries due to favourable
weather conditions.
fi
fi
fl
• occurs when the quantity
supplied decreases in
response to a fall in price
• eg, If the price of cotton
decreases signi cantly, cotton
farmers may reduce their
production due to lower
pro tability.
• occurs when the quantity
supplied increases at every
price level, shifting the
supply curve to the right.
• eg, Advancements in
agricultural technology allow
farmers to produce more
corn per acre, leading to an
increase in the supply of
corn.
8
• occurs when the quantity
supplied decreases decreases
at every price level, shifting
the supply curve to the left
• eg, Severe weather
conditions, such as a ood or
drought, reduce the yield of
oranges, resulting in a
decrease in the supply of
oranges.
Elasticity of Supply

9
 Elastic:
a small change in price leads to
a proportionately larger change
in quantity supplied
eg, Specialty crops like
avocados have an elastic
supply as it takes several years
for new trees to mature, but
once matured, they can
produce large quantities in
response to price changes.
Perfectly inelastic:
when the quantity supplied
remains constant regardless
of changes in price
fi
fi
fl
fl
Unitary elastic: Inelastic:
• percentage change in quantity supplied equals the percentage change in price causes a
change in price relatively smaller change in
quantity supplied
• eg, Wheat production might exhibit unitary elasticity as moderate
changes in price can lead to proportional adjustments in the eg, Staple crops like rice often
quantity supplied due to relatively exible planting and harvesting have an inelastic supply as their
schedules. production is limited by factors
such as land availability and
climate, causing only slight
changes in quantity supplied
despite price uctuations.
Perfectly elastic:
when even the slightest
change in price results in an
in nite change in quantity
supplied or when the supply
is responsive only at a
speci c price point
10
 Factors Influencing Elasticity of Supply
1. Availability of Substitutes:
• When substitutes are readily available, the elasticity of
supply tends to be higher as producers can switch to
alternative goods or inputs.
• eg, If the price of one crop increases, farmers may switch
to cultivating other crops that o er similar returns per acre,
thereby increasing overall supply elasticity.
2. Time Horizon:
• Short-run constraints may lead to inelastic supply as
producers cannot easily adjust production levels. In the
long run, supply becomes more elastic as producers have
time to adopt new technologies or adjust resources.
• eg, In the short run, a farmer may be unable to increase the
supply of perishable goods like fresh vegetables due to
xed land and growing seasons. However, in the long run,
they can invest in greenhouse technology to extend
growing seasons, making supply more elastic.
3. Resource Mobility:
• The ease with which resources can be reallocated
in uences supply elasticity. Higher resource mobility allows
for quicker adjustments in production levels.
11
fi
fl
ff
ff
ff
fl
fi
• eg, In regions where farm labor is highly mobile, such as
areas with large migrant worker populations, farmers can
quickly adjust labor inputs in response to changes in
market conditions, leading to a more elastic supply of
agricultural products.
4. Storage and Inventories:
• Availability of storage facilities and the ability to hold
inventories a ect supply elasticity. Greater storage capacity
allows producers to respond to price changes by adjusting
the timing of their supply.
• eg, Grain producers can store harvested crops in silos.
When prices are low, they can store the grains and supply
them to the market when prices rise, resulting in a more
elastic supply response.
5. Degree of Specialisation:
• Specialised production processes may lead to less elastic
supply as producers have limited exibility to switch
between di erent products or adjust production methods.
• eg, Certain specialty crops that require speci c growing
conditions or equipment may have less elastic supplies
compared to more versatile crops like wheat or soybeans,
which can be grown in various regions with relatively
standard farming practices.
 Conclusion
In conclusion, understanding supply in economics is vital
for comprehending market dynamics and resource
allocation. The law of supply, which states that quantity
supplied increases as price rises, forms the cornerstone of
supply analysis. Factors such as input prices,
technological advancements, and government policies
in uence supply elasticity, impacting producers'
responsiveness to price changes. Supply schedules and
curves provide visual representations of supply
relationships, aiding in market analysis. Moreover,
recognising the distinction between supply and quantity
supplied is crucial for accurate economic analysis.
Ultimately, a thorough grasp of supply enables
policymakers, businesses, and consumers to make
informed decisions and navigate the complexities of the
market economy.
References:
1. https://www.slideshare.net/Balamoni/supply-
presentation-13357774
2. https://www.toppr.com/guides/business-economics/
theory-of-supply/meaning-and-determinants-of-
supply/
3. https://www.econlib.org/library/Enc/Supply.html
4. https://www.studysmarter.co.uk/explanations/
microeconomics/supply-and-demand/determinants-
of-supply/
5. https://keydi erences.com/di erence-between-
supply-and-quantity-supplied.html

12
fl
ff
ff