Supply Supply: of a good refers to the quantity of that good that a firm or an industry is willing to sell or produce at a particular price during a particular period of time.

Factors affecting Supply Expected profits from sale (determined by selling price) Price of production substitutes Cost of Production (price of inputs) State of Technology Goals & objectives of firm (supplier) Extent of competition in the industry Government’s policies (controls, subsidies, tax & excise incentives etc.) Means of transportation, rail-road-air connectivity, communication, Banking & insurance, irrigation facilities, electricity etc. Natural factors – fertility of land, climatic conditions (monsoons, change in seasons), floods, drought, earthquake etc.

Law of Supply Law of Supply: States that other factors affecting supply kept constant, as the price (selling) of a good rises, its quantity supplied rises and vice-versa.

Supply Curve

Changes in Quantity Supplied versus Change in Supply Changes in Quantity Supplied: a movement along the supply curve. This happens because of change in commodity’s own price. Change in Supply: a shift in the supply curve. This happens because of change in any of the factors affecting supply, other than commodity’s own price. Increase in supply: a shift to the right. Decrease in supply: a shift to the left.

A Change in Supply versus a Change in Quantity Supplied

Price Elasticity of Supply A measure of the extent to which the quantity supplied of a good changes when its price changes, all other factors affecting supply remaining the same (ceteris paribus). Price Elasticity of Supply (Es) = % Change in Quantity Supplied % Change in Price

Factors determining Elasticity of Supply Ease with which increases in output can be obtained without much rise in selling price. Response of producers to changes in price - at times they may not exhibit profit maximizing behaviour Availability of inputs Possibility (ease) of substitution of one product by the other (s) Length of time available to producers during which they have to respond to a given change in price of the product.

Equilibrium of Supply and Demand Price of Ice-Cream Cone Supply 3.00 Demand Equilibrium 2.50 2.00 1.50 1.00 0.50 Quantity of Ice-Cream Cones 1 2 3 4 5 6 7 8 9 10 11 12 30