We are studying this chapter on context of determination of PRICE OF A GOOD. Demand and supply are two forces that determine the price of a good. We have already seen the relation between the change in price and the consequent change in the demand of a good. Now we are in the process of observing the relation between the change in price and consequent change in the supply of the good..

MEANINGSupply in general terms , refers to the quantity of good , which a producer is willing to bring to the market at a particular price during a period.The four aspects necessary in any statement about supply are (a) Price of the good, (b) Quantity of good to be supplied, (c) Period of time, and (d) Supplier’s willingness to supply the goods.

Factors affecting supply

There are many factors that influence the supply of a good. The most vital factors among these are .......

S.no

Factor Relation with the Supply .

Effect on supply

(1) Price of the set good.

Direct relation.

P supply , P supply

(2) Technology Direct relation.

T supply , T supply

(3) No. of firms. Direct relation.

F supply , F supply

(4) Price of input. Indirect relation.

Pi supply , Pi

supply

(5) Taxes and rates.

Indirect relation

R supply , R

supply

(6) Prices of related good.

Indirect relation.

Pr supply , Pr

supply

(i)Individual producer :- A table showing different different quantities of a good, a producer is willing to supply , is called supply schedule of that individual producer.

(ii) Market :- The table showing different quantities of a good, all the producers taken together of that good, are willing to sell at different prices , assuming no change in factors other than the price influencing supply , is termed as market supply schedule.

Supply schedule

Individual producer

Price for Good X

Qty. Supplied of Good X

1 10

2 20

3 30

4 40

5 50

Market supply

Price / unit Supply by P1

Supply by P2

Market supply (units) (P1+P2)

1 10 5 15

2 20 10 30

3 30 15 45

4 40 20 60

5 50 25 75

Individual producer :- A supply curve is the locus of points where each point shows the quantity of a good,which a producer is willing to sell at a given price duringa given period of time, assuming no change in all other factors influencing supply.

Market :- Market supply for a good is defined as thelocus of points where each point shows the quantity of good , all producers taken together are willing to sell at a given price during a period of time assumingno change in all factors influencing supply.

Supply curve

Individual producer

3

5

Market supply

The law of supply states that quantity supplied of agood usually varies directly with its price , assumingthat all other factors determining supply remain thesame.

supply curve of a goodis usually upward sloping.At price OP1 , Quantity supplied is OQ1. At priceOP2 , Quantity suppliedis OQ2. Thus price andsupply have direct relationship.

(i) Change in Supply.

(a) Change in supply is defined as the change in quantity supplied due to non-price factors of a good.(b) Change is referred to as increase or decrease.(c) Change is expressed as Shift in supply curve.(d) Fall in price of Inputs, Use of advanced technology, Fall in price of relative goods, decrease in taxes, and rise in No. of firms lead to the Increase in supply.(e) Rise in price of Inputs, Use of less productive technology, Rise in price of relative goods, increase in taxes, and decrease in No. of firms lead to the Decrease in supply.

Features

Representation.

Rightward ShiftLeftward Shift

(ii) Change in Quantity supplied.

Features

(a) Change in quantity supplied is due to change in price of the good.

(b) Change is referred to as Extension or Contraction.

(c) Change is expressed as movement along the supply

curve.(d) If price Increases, quantity supplied

increases. If price Decreases, quantity supplied

decreases.

Representation.

extension

contraction

1) What is a minimum price of a commodity ?

2) How market supply responds to improvement in technology?

3) Why more of a commodity is offered at a a higher price?

4) What causes downward movement along a supply curve of a commodity ?