ECONOMICS FOR MANAGERS

PSG INSTITUTE OF MANAGEMENT MBA 2011-13 BATCH I Trimester Session V- For Batch C and D

Supply
The amount of a good or a service offered for sale in a market during a given period of time. (Thomas & Maurice).
There will be a willingness to supply

more by the producers of goods and services when there is a rise in the price of the good or service in the market. Unlike the relationship between EFM- Faculty P.Uday Shankar 23-08-2011 supply and price is NOT inverse like

Supply and Price

A word about unusual suppliers. Certain individual business houses may supply goods to customers at high prices (at non-market prices) and still retain a segment of customers.. BHEL, SAIL may tie-up with ancillary units for supply of materials at prices which would be a little more than the others in the market just EFM- Faculty P.Uday Shankar 23-08-2011 to ensure quality.
Certain big manufacturing units like

Variables Affecting Supply

1. Price of the good or service. 2. Price of the inputs used to

produce the good. 3. Prices of goods related in production. 4. Level of available technology. 5. Expectations of the producers concerning the future price of the good. 6. Number of firms or the amount of EFM- Faculty P.Uday Shankar 23-08-2011 productive capacity in the

Supply Functions
Generalised Supply Function

This function shows how all SIX variables jointly determine the quantity supplied.
Supply Function

This function shows the relationship between quantity supplied and the price of the product when all other variables affecting supply are held constant at specific values.
( Ceteris paribus condition when all other variables affecting demand are held constant) EFM- Faculty P.Uday Shankar 23-08-2011

Generalised Supply Function Formula

Qs =g(P,Pi,Pr,T,Pe,F)
Where g means is a function of or depends on.
Qs = Quantity of a good or service offered for sale P = Price of the good or service Pi= Prices of inputs used in production Pr = Prices of goods or services related in production T= Level of technology available EFM- Faculty P.Uday Shankar 23-08-2011 Pe = Expectations of the producers

Shift in Supply Curve

EFM- Faculty P.Uday Shankar

23-08-2011

Shift in Supply Curve

Just as we saw what happened to the

demand curve when Income increased ceteris paribus, we can similarly study each one of the variables effect on supply too. The Supply Curve will shift to the right side when there is a fall in cost of production/price of inputs. At the same price more goods will be supplied in the market. The Supply Curve will shift to the left side when there is a hike in cost of production/price of inputs. At the same price less goods will be supplied in the EFM- Faculty P.Uday Shankar 23-08-2011 market.

Market Equilibrium
Market Equilibrium is the

interaction of buyers and sellers in the marketplace. Market Equilibrium is a situation in which, at the prevailing price, consumers can buy all of a good they wish and producers can sell all of the good they wish to sell. (Thomas & Maurice)
9 EFM- Faculty P.Uday Shankar 23-08-2011

Exercise on Market Equilibrium

Price per unitQuantity of asuppliers TV set (Rs)would supply at that price (Units)
10,00050,000 12,00065,000

Quantity Demanded (Units)

100,000 75,000

15,00072,000 18,00085,000
10 EFM- Faculty P.Uday22,00098,000 Shankar

55,000 30,000 0
23-08-2011

Thanks

11

EFM- Faculty P.Uday Shankar

23-08-2011