Law Of Supply PDF

CONCEPT OF SUPPLY AND LAW OF SUPPLY BY AMJAD ALI KHAN LECTURER IN COMMERCE AND MANAGEMENT  MEANING OF SUPPLY In economics, supply during a given period of time means the quantities of goods which are offered for sale at a particular prices....

CONCEPT OF SUPPLY AND LAW OF SUPPLY BY AMJAD ALI KHAN LECTURER IN COMMERCE AND MANAGEMENT  MEANING OF SUPPLY In economics, supply during a given period of time means the quantities of goods which are offered for sale at a particular prices. The supply of a commodity by firm refers to the amount of commodity which is sellers (or producers) are able and willing to offer for sale at a particular price during a certain period of time. Thus, supply shows firm’s willingness to sell and not what it actually sells  THE THREE IMPORTANT ASPECTS OF SUPPLY ARE …… Supply is a desired quantity Supply is always explained with reference to price Time during which it is offered for sale  DEFINITION OF SUPPLY According to Thomas “ the supply of goods is the quantity offered for sale in a given market at a given time at various prices” According to Samuelson, “Supply refers to the amount of a good that a producers in a given market desire to sell, during a given time period at various prices, ceteris paribus.”  SUPPLY FUNCTION OR DETERMINANTS OF SUPPLY Supply function explains functional relationship between supply of a commodity and the determinants of supply. Supply of a commodity by a firm depends on price of the commodity itself, prices of other commodities, state of technology, cost of factors of production, objectives of the firm, etc. Thus, the relationship between the quantity supplied and its determinants is called the supply function. This can be expressed mathematically as show below:  where, Sx = Supply of a commodity Px = price of the commodity Pr = Price of the Related goods Nf = number of firms G = Goal of the firm Pf = Price of Factors of Production T = Technology Ex= Expected future price Gp= Government policy  SUPPLY SCHEDULE AND SUPPLY CURVE Supply schedule is a tabular statement showing various quantities of a commodity which are offered for sale at different prices during a given period of time. Thus, in simple words it refers to a table showing the quantity of a commodity supplied at various prices during a given period. The supply curve is a graphical representation of the supply schedule. Supply schedule and supply curve are of two types; 1. Individual Supply Schedule and Individual Supply Curve LAW OF SUPPLY  LAW OF SUPPLY Law of supply reflects the general tendency of the sellers in offering their stock of a commodity for sale in relation to varying prices. It has been observed that usually sellers are willing to supply more with a rise in prices. Law of Supply states that other things remaining the same the quantity of any commodity that firms will produce and offer for sale rises with rise in price and falls with fall in price.  i.e., Higher the price, higher will be quantity supplied and lower the price, smaller will be quantity supplied. ‘other things remaining the same means determinants other than own price such as technology, goals of the firm, government policy, price of related goods etc. should not change.  ASSUMPTIONS OF LAW OF SUPPLY Cost of No change in Fixed scale Production is technique of of unchanged production production Government No No change in policies are Speculatio transport costs unchaged n The prices of other goods are held constant Expectation of change in prices in the future Agricultural products EXCEPTIONS Perishable goods OF LAW OF Goods having social distinction SUPPLY Goods for Auction ELASTICITY OF SUPPLY ELASTICITY OF SUPPLY  DEFINITION OF ELASTICITY OF SUPPLY According to Lipsey, “Elasticity of supply is that ratio of percentage change in quantity supplied over the percentage change in price” According to Prof. Bilas, “Elasticity of supply is defined as the percentage change in quantity supplied divided by percentage change in price. FACTORS DETERMINING ELASTICITY OF SUPPLY Than k you