Transcript Supply - Notes Milenge

Supply
Amity School of Business
Supply: of a good refers to the quantity of
that good that a firm or an industry is
willing to sell or produce at a particular
price during a particular period of time.
Factors affecting Supply
Amity School of Business
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Expected profits from sale (determined by selling price)
Price of production substitutes
Cost of Production (price of inputs)
State of Technology
Goals & objectives of firm (supplier)
Extent of competition in the industry
Government’s policies (controls, subsidies, tax & excise
incentives etc.)
• Means of transportation, rail-road-air connectivity,
communication, Banking & insurance, irrigation facilities,
electricity etc.
• Natural factors – fertility of land, climatic conditions
(monsoons, change in seasons), floods, drought, earthquake
etc.
Law of Supply
Amity School of Business
• Law of Supply: States that other factors
affecting supply kept constant, as the price
(selling) of a good rises, its quantity supplied
rises and vice-versa.
Supply Curve
Amity School of Business
Amity School of Business
Changes in Quantity Supplied versus Change in Supply
• Changes in Quantity Supplied: a movement along the supply
curve. This happens because of change in commodity’s own price.
• Change in Supply: a shift in the supply curve. This happens
because of change in any of the factors affecting supply, other than
commodity’s own price.
– Increase in supply: a shift to the right.
– Decrease in supply: a shift to the left.
A Change in Supply versus a Change in Quantity Supplied
Amity School of Business
Price Elasticity of Supply
Amity School of Business
• A measure of the extent to which the quantity
supplied of a good changes when its price
changes, all other factors affecting supply
remaining the same (ceteris paribus).
• Price Elasticity of Supply (Es)
= % Change in Quantity Supplied
% Change in Price
Factors determining Elasticity of Supply
Amity School of Business
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Ease with which increases in output can be obtained without
much rise in selling price.
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Response of producers to changes in price - at times they
may not exhibit profit maximizing behaviour
•
Availability of inputs
•
Possibility (ease) of substitution of one product by the other
(s)
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Length of time available to producers during which they have
to respond to a given change in price of the product.
Equilibrium of
Supply and Demand
Amity School of Business
Price of
Ice-Cream
Cone
Supply
3.00
Equilibrium
2.50
2.00
1.50
1.00
Demand
0.50
0
1 2 3 4 5 6 7 8 9 10 11 12
Quantity of
Ice-Cream
Cones