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Supply ppt

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concept of supply in business economics

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Supply ppt

  1. 1. BUSINESS ECONOMICS Topic - SUPPLY Presented by - Vivek 1113253 B.Com Honors II year
  2. 2. SUPPLY • 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.
  3. 3. 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.
  4. 4. 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.
  5. 5. 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.
  6. 6. FACTORS DETERMINING SUPPLY a) Price of the commodity; b) Price of related goods; c) State of technology; d) Cost of production; and e) Government policy.
  7. 7. SUPPLY SCHEDULE • 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 time. • A supply schedule may be individual supply schedule or market supply schedule.
  8. 8. 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. Price/unit Qnty. supplied 10 25 15 35 20 45 25 55
  9. 9. 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.
  10. 10. 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 schedule.
  11. 11. 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 curve. • It is usually positively sloping from left to right.
  12. 12. 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 commodity. • Movement along the supply curve is of two types: 1) Expansion of supply, and 2) contraction of supply.
  13. 13. 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 quantity supplied. - Here the supply curve moves upward. - It is due to increase in price.
  14. 14. 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.
  15. 15. 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
  16. 16. • A change in any of these factors causes shift in the supply curve. It is also called change in supply. • In a shift, a new supply curve is drawn. • A shift of the supply curve can be of two types: 1) Increase in supply, or 2) Decrease in supply
  17. 17. 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 supply. - 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
  18. 18. - Increase in supply is defined as more supply at the same price, or same supply at a lower price.
  19. 19. 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
  20. 20. - Decrease in supply is defined as same quantity supplied at a higher price or less quantity supplied at the same price.
  21. 21. THANK YOU

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