Law of Supply

Dr. Kalyani Bondre

M.A., M.P.M., Ph.D. (Economics)
 Supply
• Defined as the quantity of a product that the seller is
able and willing to sell in the market at a given price.

• Direct relationship between price and supply

• Law of Supply: All other things remaining the same, if

the price of a commodity increases, the quantity of
supply tends to increase and vice versa.

• The seller would like to sell more when the price in the
market is high and would like to restrict supply, when
the price is low, thereby earning higher profits.
 Factors affecting supply
• Price of the product
• Production and its cost
• Availability and price of raw materials
• Technology
• Proximity of production centers to markets
• Geographical conditions
• Availability and cost of transport
• Scale of production
• Seller’s expectations
• Total number of suppliers in the market
• Government policies
• Natural factors, seasons, calamities, etc
 Supply Schedule
Individual supply schedule
Price (Rs/kg) Quantity of Supply (Kgs)
5 100
8 120
10 150
13 170

Market Supply Schedule

Price (Rs/kg) Supply Supply of Supply of Market
of A B (kgs) C (kgs) Supply
(kgs) (kgs)
5 100 70 90 260
8 120 130 150 500
10 150 150 170 470
13 170 180 200 550
Supply curve
 Exceptions to the Law
• Perishable Goods
• Antique Goods
• Distress Sale
• Future Expectations
• Supply of Labour
 Elasticity of Supply
• The degree of responsiveness of supply to a given change
in price
• Es= % change in quantity supplied ÷
% change in price
• Types of Elasticity:
• Es = 0
• Es < 1
• Es = ∞
• Es > 1
• Es = 1
 Perfectly Inelastic Supply
S
y
Price

o S x
Quantity of Supply
 Relatively Inelastic Supply
S
y
Price

S
o x
Quantity of Supply
 Perfectly Elastic Supply

y
Price

P S

o x
Quantity of Supply
 Relatively Elastic Supply

y
Price

o x
Quantity of Supply
 Unit Elastic Supply

y
Price
S

o x
Quantity of Supply
 Factors Affecting Elasticity of Supply

• Scale of Production
• Technology
• Nature of the Product
• Time Period
• Transport
• Availability of raw materials