Transcript UNIT - 4 (ME).

UNIT - 4
MEANING OF SUPPLY
Supply is the amount of a product ie. offered by the
producers of that particular product to the market.
Supply of the product refers to the various amounts
which are offered for sale at a particular price during a
given period of time.
STOCK is the total volume of a commodity which can
be brought into the market for sale at a short notice and
supply means the quantity which is actually brought in the
market.
SUPPLY SCHEDULE
It’s a tabular representation of different quantities of a
commodity supplied at varying prices.
Price in Rs.
Quantity supplied in units
5
500
4
400
3
300
2
200
1
100
0.75
00
MARKET SUPPLY SCHEDULE
Quantity supplied in units
Total
(A+B+C)
Price in
Rs.
A
5
500
600
7OO
1800
4
400
500
600
1500
3
300
400
500
1200
2
200
300
400
900
1
100
200
300
600
B
C
LAW OF SUPPLY
As the price of product increases, its quantity supplied
will be increases & vice – versa. Other things remaining
constant.
FEATURE
Direct relationship between price and supply.
Price is independent & supply is dependent variable.
Other things (no of firms, scale & speed of production,
techniques, cost of production, market price of other
related goods etc. ) being constant.
SUPPLY CURVE
y
S’
PRICE
P1
P2
Q1
Q2
QUANTITY SUPPLIED
X
EXCEPTIONS OF LAW OF SUPPLY
If seller is badly in need of money.
If seller wants to get rid of the product.
 when heavy fall in price is anticipated.
In case of auction, auctioneer is not interested.
SHIFT IN A SUPPLY CURVE
When supply of a product changes only due to a change in
the price of that product alone, it is called either expansion
or contraction in supply.
INCREASE IN SUPPLY
It implies more supply at the same price or same quantity
of supply at a lower price.
S
6
P
P’
PRICE
10
20
QUANTITY SUPPLIED
S1
DECREASE IN SUPPLY
It implies that less quantity is supplied at the same price
or same quantity is supplied at a higher price.
Y
4
S1
P’
price
10
20
Quantity supplied
P
S
DETERMINANTS OF SUPPLY
Natural factors
Change in techniques of production
Cost of production
 prices of related goods
Government policy
Number of sellers of firms
Complementary goods
Discovery of new sources of inputs
Improvements in transport and communication
Future rise in prices
SUPPLY FUNCTION
S = f (P)
Sx = f (Pf, T, Cp, Gp, N……… etc )
Where
Sx = supply of a given product X
Pf = price of factor input
T = Technology
Cp = cost of production
Gp = govt. policy
N = number of firms
ELASTICITY OF SUPPLY
It refers to the sensitiveness or responsiveness of supply
to a given change in price.
Es = % change in supply / % change in price
TYPES OF ELASTICITY
PERFECTLY ELASTIC SUPPLY
ES =∞
PRICE
SUPPPLY
PERFECTLY INELASTIC SUPPLY
Y
S
ES = 0
PRICE
S
SUPPLY
X
RELATIVELY ELASTIC SUPPLY
Y
S
PRICE
ES > 1
S
X
SUPPLY
RELATIVELY INELASTIC SUPPLY
Y
S
PRICE
ES < 1
S
X
SUPPLY
UNITARY ELASTIC SUPPLY
S
Y
PRICE
ES = 1
S
SUPPLY
X
MARKET EQUILIBRIUM
Market equilibrium is a state of balance at which the
supply of all firms fulfills the demand of all consumers.
Demand of all consumers & the supply of all firms
together determine the price of a commodity in the
market.
At a point where supply and demand curve intersect
with each other, the equilibrium price is established.
At equilibrium point, quantity demanded equals to the
quantity supplied.
Y
S
D
E
PRICE
S
D
X
Q. SUPPLIED & Q. DEMANDED
CHANGE IN EQUILIBRIUM
Due to shift in demand curve
Due to shift in a supply curve
Due to shift in both demand & supply curve