The Supply Decision

8/14/2019 The Supply Decision

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The Supply DecisionTHE WILL TO WIN IS IMPORTANT, BUT THE

WILL TO PREPARE IS MORE IMPORTANT


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SUPPLY ANALYSIS

Supply is defined as the amount

of the commodity which the seller

or producers are able and willingto offerfor sale at a particular

price, during a certain period of

time.Supply Function

QSx = f{ Px, St, Tr, Pr, Fp, Gp.}


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Determinants of Supply --

Price of the Commodity

Natural conditions

State of Technology

Transport conditions

Factor prices and their availability

Government PolicyPrices of related goods

Number of competitors


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Law of Supply

Law of Supply states that, Other

things remaining the same

(Ceterius Paribus) when the priceof the commodity increases the

quantity supplied increases.

QSx = f {Px}


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Supply SchedulePrice of Pizza (Rs.) Quantity Supplied

(units) Producer A

50 8

40 7

30 5

20 3

10 0


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Market Supply Schedule Horizontal

summation of individual supply

schedule

Price ofPizza(Rs.)

QS by

Mr. A

QS by

Mr. B

QS by

Mr. C

MarketSupply

50 8 10 12 30

40 7 9 11 27

30 5 8 10 23

20 3 7 0 10

10 0 6 0 6


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Producer As Supply Curve Of

Pizza SS

P

P1

Q Q1

Quantity Supplied

P

R

I

C

E

O

Y

X


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Exceptions to the Law of Supply

Backward Bending Supply Curve.

XX

YY SSSS

SS

bb

cc

aa

LL LLLL

ww

ww

ww

WW

AA

GG

EE

RR

AA

TT

EE

No. of LaborersNo. of Laborers

OO


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Exceptions to the Law of

Supply:Land, Rare paintings or antics

XX

YY

SSSS

QQ

PP

PP

PP

PP

RR

II

CC

EE

LandLandOO


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Other exceptions to the law of

supply:

Perishable goods

Agriculture goods

Goods for auctionDisposal of stock

Backward countries resourcesare limited or unexplored.


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Change in Quantity supplied

Expansion in Supply

Contraction in Supply


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Change in Quantity supplied

XX

YY SSSS

aa

bb

cc

QQQQQQ

PP

PP

PP

PRPR

II

CECE

OO

Quantity Supplied

Contraction

Expansion


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Changes in Supply

Increase in Supply

Decrease in Supply


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Changes in Supply

XX

YYPRPR

II

CECE

QUANTITY SUPPLIEDQUANTITY SUPPLIED

SSSS

SSSS

SSSS

QQ

QQ

QQ

PP

OO

Decrease

Increase


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Elasticity of Supply defined as the degree of

responsiveness of the quantity supplied due to

the change in price.

Percentage change in the quantity suppliedEs= --------------------------------------------------

Percentage change in the price


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Measurement of Elasticity of

Supply

Es = Qs

P

P

Qsx


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Types of elasticity of Supply

Perfectly elastic (Es=)

Relatively elastic (Es>1)

Perfectly inelastic(Es=0)Relatively inelastic (Es


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Types of elasticity of Supply

XX

YY

PP

RR

II

CC

EE

QUANTITY SUPPLIEDQUANTITY SUPPLIED

es =es =

es = 0es = 0 es < 1es < 1es = 1es = 1

es > 1es > 1

OO


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Factors affecting elasticity of

supply

(1) Nature of the Product :

Perishable - Inelastic

Durable Elastic

(2) Time Period :

Market Period Perfectly inelastic

Short Period Inelastic

Long Period Elastic

F t ff ti l ti it f


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supply

(3) Scale of Production :

Small Scale Inelastic

Large Scale Elastic

(4) Technique of Production :

Labor Intensive InelasticCapital Intensive -- Elastic


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supply

(5) Natural factors

Good Rainfall Elastic

Bad Rainfall Inelastic

(6) Mobility of Factors :

High degree of mobility ElasticLow degree of mobility Inelastic


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Equilibrium

No-Case-on-the Table Principle


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Market Demand and Supply

Equilibrium of PizzaPrice (Rs.) Quantity

Supply (QS)Quantity

Demanded(QD)

6 8000 2000

5 6000 3000

4 4000 4000

3 2000 5000

2 0 6000


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Equilibrium

X

Y

P

RI

C

E

QUANTITY DEMANDED AND SUPPLIED

DDSS

4

4000

E

O

3

Shortage

DD>SS


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Equilibrium

X

Y

P

R

I

C

E


SS

DD

DD

DD

E

E

E

P

P

P

Q QQO


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Equilibrium

X

Y

P

RI

C

E


SS

SS

SS

E

E

E

DD

Q QQ

P

P

P

O

The Supply Decision

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