Supply Eco 113 Lovely Professional University

Lecture on Supply from Lovely Professional University

1. ECO113
By
Dr. Md Abusaad
BUSINESSECONOMICS

2. Learning
Outcomes
After this lecture , you will be able to
✓Understand the basics of Supply
✓Analyze the determinants of Supply
✓Analyze the Law of Supply

3. Supply
•Supplyreferstothequantitiesofacommoditythat
theselleriswillingandabletoprovideataprice,
atagivenpointoftime.

4. Determinants of Supply
•Supply=f(P
x,C
,T,G,N)
Where,
P
x:PriceoftheProduct
C:CostofProduction
T:StateofTechnology
G:Governmentpolicyregardingtaxes
N:Numberoffirms

5. Determinants of Supply
•Supply is positively related to the price of the product.
•S ∝P
Price of the Product
Quantity
Price
S
S

6. Determinants of Supply
•Thereisaninverserelationshipbetweencostof
productionandsupply.
•Ifthecostincreases,thenthesupplyoftheproduct
willgetreduced.
Cost of Production

7. Determinants of Supply
•Thereisapositiverelationshipbetweenthestate
oftechnologyandsupply.
•Anyimprovementintechnologywillreducethe
costandthesupplywillgetimproved.
State of Technology

8. Determinants of Supply
•Thereisanegativerelationshipbetweenthefuture
expectationofpriceandsupply.
•Forexample,iffirmsexpectthepriceofacommodity
toriseinthefuture,theymayputsomeoftheircurrent
stockintostorageandsupplylesstothemarkettoday.
Firms Expectations

9. Determinants of Supply
•Thisisamacroeconomiccomponentwhichhasa
directbearingonthesupplyofaproduct.
•Thegovernmentpolicyregardingtaxationmaylead
toincreaseordecreaseinthecostofproductionand
accordinglythesupplygetsinfluenced.
Government Policies

10. Determinants of Supply
•Thestageofcompetitioninthemarketwill
determinethesupplyoftheproductinthemarket.
•Ifthereisperfectcompetitionorunrestrictedentry
ofsuppliersinthemarket,thesupplywillbehuge.
•Incaseofmonopoly,thesupplywillbelimited.
Number of Firms

11. Determinants of Supply
•Thereareoftenmanynaturalorsocialfactorsthat
affectsupply.Theseincludesuchthingsasthe
weatheraffectingcrops,naturaldisasters,pestilence
anddisease,changingattitudesandsocial
expectations.
Natural/Social Factors

12. Individual Supply and Market Supply
Individual Supply
•Thequantityofacommodity
aselleriswillingandableto
sellateverypossibleprice
duringaspecifictimeperiod
isknownasIndividual
Supply.
Market Supply
•The quantity of a commodity
that all sellers are willing and
able to sell at every possible
price during a specific time
period is known as Market
Supply.

13. Supply Schedule and Supply Curve
Supply Schedule
•Atablethatshowsthe
relationshipbetweenthe
priceofagoodandthe
quantitysupplied.
Supply Curve
•A graphical representation
of relationship between
the price of a good and the
quantity supplied.

14. Law of Supply
•Thelawofsupplystatesthatotherthings
remainingthesame(ceterisparibus)thequantity
suppliedofagoodfallswhenthepriceofthegood
decreases,andwhenthepriceincreases,the
quantitysuppliedrises.
•Thereisadirectrelationshipbetweenpriceand
quantitysupplied.

15. Law of Supply
Quantity
Price
D
D
O X
Y
P
2
P
0
P
1
Q
1 Q
0 Q
2

16. Exceptions of Law of supply
•Closure or change in business
•Agricultural products
•Monopoly
•Competition
•Perishable goods
•Rare goods
•Out of fashion goods

17. Changes in Supply Curve
•TheSupplyCurvemaychangeundertwocircumstances.
Change in factors
other than price of
the product
Change in Price

18. Change in Supply due to Change in Price
•A change in price leads to a movement along the
supply curve and is referred to as a change in
quantity supplied.
•A movement along the supply curve occurs when
there is a change in price.

19. Change in Supply due to Change in Price
Quantity
Price
D
D
O X
Y
P
2
P
0
P
1
Q
1 Q
0 Q
2

20. Shift in the Supply Curve
•Ashiftinthesupplycurveiscausedbyafactor
affectingsupplyotherthanachangeinprice.The
shiftinthesupplycurveisreferredtoasan
increaseordecreaseinsupply.

21. Shift in the Supply Curve
Quantity
Price
S
S
S2
S2
S1
S1
E
E2
E1

22. That’s all for now…