SUPPLY ANALYSIS

INTRODUCTION
Supply refers to the schedule of quantities of a commodity that
will be offered for sale at various prices.

Supply is the quantity of a commodity that the producer is

willing and able to offer for sell in the market at a given price in
given period of time.

Supply is always expressed in terms of price.

Supply is a flow because it is measured over a period of time

SUPPLY FUNCTION
Sx = f(Px, Py,Pz,..Pf, O, T)
Where
Sx Amount of good X supplied
Px Price of good X
Py, Pz Price of other goods in the market
Pf Prices of factor of production needed to produce X
O Objective of the producer
T State of technology used by the producer to produce product X
LAW OF SUPPLY
Other things remaining unchanged, the supply of a commodity
expands (rises) with a rise in its price, and contracts (falls) with a fall
in its price.

The fundamental principle of Law Of Supply explains - Supply of any

commodity is directly proportional to Price of that commodity.

That means, as the price of a good increases, suppliers will attempt to

maximize profits by increasing the quantity of the product sold.
 LAW OF SUPPLY
The law of supply consider the most important determinant of Supply viz price of
the commodity.

Hence the Supply function is

Sx = f(Px)

Keeping other factors constant.

 ASSUMPTIONS OF LAW OF SUPPLY
1. Cost of production is unchanged.
2. Technique of production is unchanged.
3. Fixed scale of production.
4. Government policies are unchanged.
5. No change in Transport costs.
6. No speculation.
7. The prices of other goods are held constant.
8. Producers should aim at maximizing their profits
 SUPPLY SCHEDULE
Individual Supply Schedule
It is defined as a table which shows
various quantity of commodity
which an individual producer offers
for sale during a given period of time
at different prices.
Market Supply Schedule
It is a table which shows various
quantity of commodity that all the
firms are willing to supply at each
market price during a given period
of time
SUPPLY CURVE 7
Supply Curve

Supply Schedule
5

Price per Unit Supply of Units

1 100 4

2 200
3
3 300
4 400
2
5 500
6 600 1

0
100 200 300 400 500 600
REASONS FOR SUPPLY CURVE MOVING UPWARDS
Goal of earning higher profit by the producer

As output increases, the additional cost of producing an extra unit

goes up.
FACTORS INFLUENCING CHANGE IN SUPPLY
1. Cost of Production.
2. Technique of production.
3. Natural Factors.
4. Government Policies.
5. Transport Facilities.
6. Goals of firms
8. Price of that commodity
9. Prices of related commodities
10. Expectations of future level of prices
11. Taxes and subsidies
EXCEPTIONS TO LAW OF SUPPLY
A Vertical Straight Line Supply Curve:
It happens in the case of highly perishable commodity. supply for
which cannot be increased or decreased due to their highly
perishable nature for example- fish, milks and milk products, leafy
vegetables etc.

Backward Sloping Curve:

This type of supply curve might occur in the case of Labourers in
terms of nos. of hours worked. In this case to some extent supply of
Labourer increases with increase in the wages but after a certain point
supply of Labour starts decreasing even if the wages are increasing.
 Basic of Differences Stock Supply
Difference Between Stock & Supply Meaning Refers to the total volume of goods which producers Means quantity of commodity which is
& seller are ready to offer for sale at a short actually brought in the market.
notice.

Dependence Stock Of the commodity mainly depends on Supply Of a commodity depends mainly on
a) Production of commodity . the market price of the commodity
b) Procurement price
c) Storage & transport cost
d) Perishable nature of commodity

Concept It has a stock concept i.e. stock refers to amount of It is a flow concept i.e. it refers to the amount
a commodity at a particular point of time of a commodity that the firm produce &
offer for sale in the market during a period
of time.

Commodities In case of highly perishable commodity, stock & In case of durable commodity supply consists
supply would almost the same since these items only a part of total stock
cannot be stored for a long period.

Objective The stock of any commodity helps in checking Enables the firm to earn sales revenues
fluctuations of market price.