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Topic - SUPPLY
Presented by -
• Supply of a commodity means quantity of the
commodity which is actually offered for sale
at a given price during some particular time.
• The definition of supply is complete when it
has the following elements:
(i) Quantity of a commodity offered for sale;
(ii) Price of the commodity; and
(iii) Time during which the quantity is offered.
THE LAW OF SUPPLY
•‘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.
REASONS BEHIND UPWARD
SLOPING SUPPLY CURVE
a. Law of diminishing marginal productivity:
The law states that as more units of the
variable factor are employed , the addition
made to total production falls, i.e., cost of
production rises. Thus, more quantity is
supplied only at higher price so as to cover
the rise in cost of production.
b. Goal of profit maximization:
The aim of producers is to maximize profits.
The aim can be achieved by raising the price
of goods. At higher price producers increase
the supply of goods.
a) Price of the commodity;
b) Price of related goods;
c) State of technology;
d) Cost of production; and
e) Government policy.
• A supply schedule is a tabular statement
showing various quantities which producers
are willing to produce and sell at various
alternative prices during a given period of
• A supply schedule may be individual supply
schedule or market supply schedule.
Individual supply schedule
• It is the table which shows various quantities of
a commodity that an individual producer or a
firm would offer for sale at different prices
during a given period.
Individual supply curve
• It is defined as the curve which
shows various quantities of a
given commodity which an
individual producer is willing to
supply at different prices during
a given period of time,
assuming no change in all other
factors affecting supply.
• It is usually positively sloping
from left to right.
Market supply schedule
• It is the table which shows various quantities
of the goods that all the firms are willing to
supply at each market price during a specified
time period, assuming that factors other than
the price of the goods are given.
• It is the summation of individual supply
Market supply curve
• It is the curve which shows various
quantities of a commodity which all
the producers are willing to produce
and sell at different prices during a
given period of time, assuming that
other factors remain same.
• It is the horizontal summation of
individual supply curves.
• It is also called Industrial supply
• It is usually positively sloping from
left to right.
CHANGE IN QUANTITY SUPPLIED
(MOVEMENT): Expansion or
Contraction of supply
• A movement along the supply curve is caused
by changes in the price of the good, other
things remaining constant. It is also called
change in quantity supplied of the
• Movement along the supply curve is of two
1) Expansion of supply, and
2) contraction of supply.
1) Expansion or Extraction of Supply:
- When the quantity supplied rise
due to rise in the price, it is
extension of supply or increase in
- Here the supply curve moves
- It is due to increase in price.
2) Contraction of supply:
- When the quantity supplied falls due to a fall
in its price, it is called contraction of supply or
decrease in quantity supplied.
- In this case supply curve moves downwards.
- It is due to decrease in price.
CHANGE IN SUPPLY (SHIFT): Increase
or Decrease in Supply
• A shift in supply curve is caused by changes in
factors other than the price of good.
• These factors are:
a) Price of other commodities
b) State of technology
c) Cost of production
d) Government policy
• A change in any of these factors causes shift in
the supply curve. It is also called change in
• In a shift, a new supply curve is drawn.
• A shift of the supply curve can be of two
1) Increase in supply, or
2) Decrease in supply
1) Increase in supply:
-when supply of a commodity rises due to
favorable changes in factors other than price
of the commodity, it is called increase in
- Favorable changes imply:
(i) Improvement in technique of production
(ii) Fall in the price of related goods
(iii) Fall in the cost of production
(iv) Fall in taxes
- Increase in supply is defined as more supply at
the same price, or same supply at a lower
2) Decrease in supply:
-When supply of a commodity falls due to
unfavorable changes in factors other than its
price, it is called decrease in supply.
-The causes of decrease in supply are:
(i) Obsolete technique of production
(ii) Increase in the prices of related goods
(iii) Increase in the cost of production
(iv) Rise in tax
- Decrease in supply is defined as same quantity
supplied at a higher price or less quantity
supplied at the same price.