law of supply
TRANSCRIPT
LAW OF SUPPLY
SCHEDULE AND DIAGRAM
SUPPLY
Definition
Quantity of product brought for sale at a price during a particular period of time.
Basis of Supply.
BASIS OF SUPPLY
Reservation Price Cost of Production. Nature of Product. Need for money. Expectation regarding future price. Time required for varying supply. Holding Capacity. Warehousing Costs/Facilities.
THE LAW OF SUPPLY
Other things remaining constant,
there is a direct relationship between the quantity supplied of a commodity and its price.
Q α P
THE SUPPLY SCHEDULE.
Changes in supply to changes in price.
Ex: Supply schedule of Product X
Price
(Rs/Kg)
Supply
(Kg)
4 400
6 800
8 1100
10 1300
12 1400
THE SUPPLY CURVE
0
2
4
6
8
10
12
14
400 800 1100 1300 1400
Supply (Kgs)
Pri
ce
(R
s/K
g)
INDIVIDUAL & MARKET SUPPLY
Price
(Rs.)
Market Supply (Quintals)
A B C D Total
400 4 3 5 6 18
600 8 6 9 10 33
800 11 8 12 15 46
1000 13 10 15 20 58
1200 14 11 20 30 75
INDIVIDUAL & MARKET SUPPLY CURVE
0
200
400
600
800
1000
1200
1400
0 20 40 60 80
Quantity
Pri
ce
A
B
C
D
Md
SUPPLY CURVE AS DIVIDING LINE
Q
P
120
78
140 160
(Rs/Kg)
(Kg)
SAttainable region
Non-Attainable
SUPPLY & DEMAND RELATION
Equilibrium Price.
Disequilibrium Excess Supply Q2-Q1
Excess Demand Q2-Q1
Equilibrium pt.
P1
Q1 Q2
P1
INCREASE OF SUPPLY
Price
(Rs)
Supply1
(Qtl.)
Supply2
(Qtl.)
200 150 300
300 250 400
400 300 450
500 350 500
600 400 550
0
100
200
300
400
500
600
700
0 100 200 300 400 500 600
Quantity
Pri
ce S1
S2
•Decrease in cost of Production
EFFECT OF INCREASE OF SUPPLY
• Whatever the cause, the most likely effect will be that the price of the good will decrease and that more of the good will be sold.
S ↑ => P ↓, Q ↑
• an increase of supply gets buyers to buy more of the good by lowering the price.
Q
S0P
Q0
P0
D
S1
Q1
P1
DECREASE OF SUPPLY
Price
(Rs)
Supply1
(Qtl.)
Supply2
(Qtl.)
200 300 150
300 400 250
400 450 300
500 500 350
600 550 400
0
100
200
300
400
500
600
700
0 100 200 300 400 500 600
Quantity
Pri
ce S1
S2
Increase in cost of Production
EFFECT OF DECREASE OF SUPPLY
• Whatever the cause of the decrease of supply, the most likely effect will be that the price of the good will increase and that less of the good will be sold.
S ↓ => P ↑, Q ↓
• Decrease of supply gets buyers to buy less of the good by raising the price.
Q
S0
P
Q0
P0
D
S1
Q1
P1
