PRESENTATION BY: M.Ramya Priya Ranjeet Kumar Ranjeet Singh Sandeep Arya Sanjeev Kumar Saumya Chandra Saurabh Kumar Saurabh Pandey Saurabh Shah
What Is Supply?
Supply of a commodity refers to the various quantities of the the commodity which a seller is willing and able to sell at different prices in a given market, at a point of time. Supply is related to scarcity. Its only the scarce goods which have a supply price; Goods which are freely available have no supply price.
The Determinants of Supply
Price of good : since higher money income is necessary to induce producers to produce more, the amount supplied therefore increases when producers get a higher price for their product. Prices of other goods: change in prices of other goods in the market also has influence on the supply of a commodity. E.G: if the price of good Y rises, the producer of X will start considering switching production to Y.
Factor affecting the supply of commodity
1. The price of commodity:- The supply of commodity very much depend upon its price. There is direct and positive relationship between price of commodity and supply.
2. The price of the substitutes:-The supply of a particular commodity is inversely related with the price of other commodities,such as the supply of wheat will fall with the rise in price of rice.This is due to the fact that rise in price of rice will encourage the producers to produce more rice.consequently area under wheat will be lesser and the supply will of decline. 3.Change in technology:-If the change in technology or new discoveries bring reduction in price and increase in production,this will increase the level of supply also. 4.Goals of firm:-Generally the aim of firm is maximize the profit. Beside this maximum sales,maximum output or maximum employment is also taken as the goal s of firm..This goals change in them affect the supply of commodity.sometimes the producer may continue to maximize the supply of commodity without profit simply to build the their image and prestige in society.
5.Expected change in price:-In case producer expect an increase in the price ,they will try to withdraw goods from the market.Consequently,supply will reduce .If price is expected to fall in the market ,supply will naturally increase.
6.Natural factors :- Supply of good is a part of good produce.It
mean that more production of good will result its more supply and vice –versa..Agricultural production depends upon the natural factors such as rain,fertility,climatic condition etc. production may be adversely affected by drought and heavy rains and flood etc.
7.Means of transportation and communication:Adequate supply of commodities is maintained If the means of transportation and communication are developed.Scarcity of good will be less in the domestic market,if the mean of the transportation and communication are properly developed.
8.Taxation policy:-The production of commodity is
discouraged ,if heavy duty in on its products is imposed .In the same way tax concession encourage producer to increase supply.
9.Agreement among producer:-Sometime all the firms
producing the same commodity forms an association, pool or a syndicate and regular supply of the goal in such way ,so that they may get maximum profit.
Law of Supply says, supply of the commodity will increase with increase in price and decrease with decrease in price, other things remaining the same. In other words, price of any commodity is directly related with the quantity supplied .
things remaining the same , higher the price, the greater the quantity supplied or lower the price, the smallest the quantity supplied”.
According to Dooley, ”the law of supply states that other
When we are talking of supply, we are bound to view with the eyes of producers , not the consumers ,because it’s producers who are the suppliers.
It is quite natural that in case of increase in prices producers will like to multiply their profit. For this they will be required to sell more quantity of goods and thus the supply of goods will increase. Higher price in this way induces the sellers to increase the supply of goods. On the other hand, low prices reduces the margin of profit so the producer reduces the supply.
The price cannot fall below a certain point .In case the price falls too much the supply of the product may be stopped .The price below which the producer will not be willing to sell is “reserved
The amount of reserved price depends upon :->
1.Durability of commodity 2.Estimated price 3.Storage charges 4.Transportation charges etc.
1.There is no change in price of related commodities.
2.There is no change in technique of production. 3.There is no change in price of factors of production. 4.There is no change in goal of firm. 5.There is no expectation of change in the price of the commodity.
PRESENTATION OF LAW THROUGH SUPPLY SCHEDULE
Gives a full account of supply of a particular commodity Law of supply can be better be understood with the help of supply schedule Relation between price (x) of good and its supply
PRESENTATION OF LAW THROUGH SUPPLY CURVE
Graphical representation of supply schedule is supply curve It is an upward sloping curve from left to right Thus both supply schedule and supply curve show law of supply i.e, they show a positive relationship between price and supply
Presentation of law of supply through supply curve
The graphical representation of the supply schedules supply curve. The relationship between the quantity sellers want to sell during some time period and price is what economists call the “supply curve”. It is an upward sloping curve from left to right. This shows positive relationship between price and supply. Though usually the relationship is positive, so that when price increases so does quantity supplied, there are exceptions.
Diagrammatic representation of supply schedule.
EXCEPTIONS TO THE LAW OF SUPPLY
The law of supply does not apply in following cases:
1.In case of agricultural products whose supply is affected by natural factors. 2.In case of perishable goods like food. In case of these goods seller is willing to sell more units at decaying prices. 3.In case of goods having social distinction. The supply of goods will remain limited even if their prices are high
Supply curves in very short period (market period):THE SUPPLY CURVE WILL BE A VERTICAL LINE PARALLEL TO Y -AXIS, BECAUSE FIRMS CAN NOT ADJUST THEIR PRODUCTION TO ANY CHANGE IN PRICE.
Long Period:SUPPLY OF INPUTS CAN BE CHANGED,THE SUPPLY WILL BE UPWARD SLOPING IN THE LONG PERIOD.
MOVEMENT ALONG A SUPPLY CURVE AND SHIFT OF THE SUPPLY CURVE :MOVEMENT ALONG A SUPPLY CURVE :
If the quantity supplied increases or decreases in response to rise or fall in price of commodity alone assuming other things remaining the same, it is know as the movement along the supply curve.
THERE MAY BE TWO FOLLOWING POSSIBILITIES:A) EXTENSION OF SUPPLY :-> When the quantity supplied increases with the rise in price. B) CONTRACTION OF SUPPLY :->when quantity supplied decreases with the fall in price.
When there is change in supply due to factors other than price of commodity then there is shift in supply curve. Now two cases arises: 1.INCREASE IN SUPPLY: We move from original supply curve to the new rightward supply curve. 2.DECREASE IN SUPPLY: In this case there will be leftward shift in supply curve
CAUSES FOR THE INCREASE IN SUPPLY
Following causes are responsible for increase in supply:
1. 2. 3. 4. 5. 6. 7. Fall in the price of related (substitutes) goods; Changes in the goals of producers; Fall in the price of factors of production; Improvement in technology; Increase in the number of firms in the market; Subsidies offered by the government; and When the firm expects a fall in the price of the commodity.
CAUSES FOR DECREASE IN SUPPLY
Following causes are responsible for decrease in supply :
1. Rise in the price of the related (substitute) commodities; 2. Changes in the goals of the producer; 3. Rise in the price of factors of production; 4. Fall in the level of technology; 5. Decrease in the number of firms in the market; 6. When subsidies are withdrawn ; and 7. When the firm expects a rise in the price of the commodity.
ELASTICITY OF SUPPLY
Degree of changes in the quantity of supply in relation to changes in price. Different goods respond differently to changes in price. Normally increase in increases the other too. Describes responsiveness of supply to change in price in commodity.
According to Samuelson “Elasticity of supply is the degree of the responsiveness of supply of a commodity to a change in its price.” According to Professor Bilas “Elasticity of supply is the percentage change of quantity supplied divided by percentage change in price.”
DEGREES OF ELASTICITY OF SUPPLY
Es Es=0 Es=inf Es=1 Types of elasticity Relationship of supply with price Perfectly inelastic Does not change Perfectly elastic Unit elastic Limitless change in supply (inc/dec) Changes in same proportion Supply changes in larger percentage
FACTORS AFFECTING SUPPLY
Nature of commodity. Cost of production. Element of time. Expected change in the future price. Technique of production. Risk taking.
METHODS OF MEASUREMENT OF ELASTICITY COEFFICIENT
PERCENTAGE METHOD According to it –
Es = percentage change in qty supplied percentage change in price
IMPORTANCE OF ELASTICITY OF SUPPLY
FACTOR PRICING :A factor generally generates profit when it becomes inelastic. PRICE DETERMINATION :It plays a dominant role when considered over a long period when it becomes elastic.
Supply and Demand as we all know are the two faces of the same coin…. And after a detailed study on supply we would at the end conclude the discussion with an example
Well, suppose that u want to setup a factory of shoes . Here we restrict the analysis to your decisions about how many pairs of
shoes you would be willing to supply, i.e., offer for sale.
What determines how many pairs you might produce and offer for sale each month from this plant? As in the investigation of demand for shoes, there are several considerations (already discussed ) that the buyer or demander will take into account. Likewise, you as producer and seller must also consider several things when making the decision about how many pairs of shoes to offer for sale.
For Example price is an important determinant of the quantity of a good supplied. As the "Law of Supply" states that the amount offered for sale rises as the price is higher. The quantity of pairs of shoes you are willing to offer for sale rises as their price is higher primarily because you need to cover the rising costs of production in your plant.
So at the end we believe that with the help of this presentation we would at least set up a successful shoe factory