SUPPLY ANALYSISSUPPLY ANALYSIS

“Supply of o commodity is the amount of it which the sellers ( or producers) are able and willing to offer for sale at a particular price during a certain period of time.”

Supply is a relative term – related to price and time.

SUPPLY AND STOCK

Supply comes out of stock. Stock determines the potential supply. Stock is the outcome of production.

Determinants of supply Determinants of supply o The priceThe priceo Cost of factors of productionCost of factors of productiono The state of technologyThe state of technologyo Tax & subsidyTax & subsidyo Factors outside economic sphereFactors outside economic sphere

Supply function : Mathematical or functional Supply function : Mathematical or functional relationship between supply and its determinants.relationship between supply and its determinants.

Supply schedule: Tabular relationship between Supply schedule: Tabular relationship between the supply of a commodity at different prices over the supply of a commodity at different prices over a given period of time.a given period of time.

Law of supply Law of supply : : “Other things remaining unchanged, the supply of a commodity expands with a rise in price and contracts with a fall in price.”

Assumptions underlying law of Assumptions underlying law of supplysupply

Cost of production is unchangedCost of production is unchanged No change in technique of productionNo change in technique of production Fixed scale of productionFixed scale of production Government policies are unchangedGovernment policies are unchanged No change in transport costNo change in transport cost No speculationNo speculation The prices of other goods held constantThe prices of other goods held constant

Extension and contraction of supplyExtension and contraction of supply : : The change in the quantity of supply in accordance with the The change in the quantity of supply in accordance with the

price change ie., rise in supply due to rise in price is called price change ie., rise in supply due to rise in price is called ‘Extension’ and decline in supply due to fall in price is ‘Extension’ and decline in supply due to fall in price is called ‘Contraction’ and refers to the same suply curve.called ‘Contraction’ and refers to the same suply curve.

Increase and decrease in supply:Increase and decrease in supply: Changes caused in supply by changes in various other Changes caused in supply by changes in various other

determinants, the price remaining unchanged leads to determinants, the price remaining unchanged leads to increase or decrease in supply. It causes shifts in supply increase or decrease in supply. It causes shifts in supply curves.curves.