UNIT - 4 MARKET EQUILIBRIUM

MEANING OF SUPPLY Supply is the amount of a product ie. offered by the producers of that particular product to the market. Supply of the product refers to the various amounts which are offered for sale at a particular price during a given period of time. STOCK is the total volume of a commodity which can be brought into the market for sale at a short notice and supply means the quantity which is actually brought in the market.

Quantity supplied in units SUPPLY SCHEDULE It’s a tabular representation of different quantities of a commodity supplied at varying prices. Price in Rs. Quantity supplied in units 5 500 4 400 3 300 2 200 1 100 0.75 00

Quantity supplied in units MARKET SUPPLY SCHEDULE Quantity supplied in units Price in Rs. Total (A+B+C) A B C 5 500 600 7OO 1800 4 400 500 600 1500 3 300 400 500 1200 2 200 300 400 900 1 100 200 300 600

LAW OF SUPPLY As the price of product increases, its quantity supplied will be increases & vice – versa. Other things remaining constant. FEATURE Direct relationship between price and supply. Price is independent & supply is dependent variable. Other things (no of firms, scale & speed of production, techniques, cost of production, market price of other related goods etc. ) being constant.

SUPPLY CURVE y S’ P1 P2 PRICE Q1 Q2 X QUANTITY SUPPLIED

EXCEPTIONS OF LAW OF SUPPLY If seller is badly in need of money. If seller wants to get rid of the product. when heavy fall in price is anticipated. In case of auction, auctioneer is not interested.

SHIFT IN A SUPPLY CURVE When supply of a product changes only due to a change in the price of that product alone, it is called either expansion or contraction in supply.

INCREASE IN SUPPLY It implies more supply at the same price or same quantity of supply at a lower price. S S1 6 P P’ PRICE 10 20 QUANTITY SUPPLIED

DECREASE IN SUPPLY It implies that less quantity is supplied at the same price or same quantity is supplied at a higher price. Y S1 S 4 P’ P price 10 20 Quantity supplied

DETERMINANTS OF SUPPLY Natural factors Change in techniques of production Cost of production prices of related goods Government policy Number of sellers of firms Complementary goods

Discovery of new sources of inputs Improvements in transport and communication Future rise in prices

SUPPLY FUNCTION S = f (P) Sx = f (Pf, T, Cp, Gp, N……… etc ) Where Sx = supply of a given product X Pf = price of factor input T = Technology Cp = cost of production Gp = govt. policy N = number of firms

ELASTICITY OF SUPPLY It refers to the sensitiveness or responsiveness of supply to a given change in price. Es = % change in supply / % change in price

TYPES OF ELASTICITY PERFECTLY ELASTIC SUPPLY ES =∞ PRICE SUPPPLY

PERFECTLY INELASTIC SUPPLY Y S S X PRICE ES = 0 SUPPLY

RELATIVELY ELASTIC SUPPLY PRICE ES > 1 S X SUPPLY

RELATIVELY INELASTIC SUPPLY PRICE ES < 1 S X SUPPLY

UNITARY ELASTIC SUPPLY PRICE ES = 1 S X SUPPLY

MARKET EQUILIBRIUM Market equilibrium is a state of balance at which the supply of all firms fulfills the demand of all consumers. Demand of all consumers & the supply of all firms together determine the price of a commodity in the market. At a point where supply and demand curve intersect with each other, the equilibrium price is established.

At equilibrium point, quantity demanded equals to the quantity supplied.

Y S D PRICE E S D X Q. SUPPLIED & Q. DEMANDED

CHANGE IN EQUILIBRIUM Due to shift in demand curve Due to shift in a supply curve Due to shift in both demand & supply curve