SUPPLY

Prepared by: Kashyap Gohel

Content:

Definition,Determinants Of Supply,Supply Function,Law Of Supply,Supply Curve And Shift In Supply

Curve

Any discussion on DEMAND can not be completed without understanding SUPPLY.

Demand and Supply are like two sides of a coin or two blades of a scissor.

As demand indicates the willingness of a purchaser to buy a particular commodity, SUPPLY means the WILLINGNESS OF THE FIRMS TO SELL A PERTICULR COMMODITY.

Definition:

SUPPLY INDICATES THE QUANTITIES OF A GOOD OR SERVICE THAT THE SELLER IS WILLING AND ABLE TO PROVIDE AT A PRICE, AT A GIVEN POINT OF TIME, CETERIS PERIBUS.

Determinants Of Supply

1. Price of the Commodity:

Just like demand, the most important determinants of supply is PRICE.

But unlike demand, Supply is POSITIVELY RELATED to Price of the commodity.

With all the other factors remaining the same, if the price of the product rises, suppliers would find it more profitable to sell more.

Thus price has positive effect on quantity supplied.

2. Cost Of Production:

Production requires the transformation of various inputs into output and involves cost that includes prices of inputs i.e. wages, rents, price of raw materials, interests, etc.

If the cost of production rises, say, due to rise in the price of raw materials, supply will definitely be reduced.

Example: company producing cotton shirts.

Price of raw cotton rises

rise in the cost of production

reduction in the production of shirts

reduction in the supply of shirts

Unless the supplier can transfer the increase in the consumer by increasing price

3. State of Technology:Technology bears a POSITIVE

relationship with supply.

An improved technology reduces cost of production per unit of output, enhances productivity and thus increase the supply of the product.

4. Number of Firm:Increase in the number of

producers of a particular product, the supply of the product in the market will increase.

If the entry is unrestricted, new firms will continue to entre the market and causing increase the supply and degree of the competiton.