SUPPLY ANALYSIS

“Supply of o commodity is the amount of it which the sellers

( or producers) are able and willing to offer for sale at a
particular price during a certain period of time.”

 Supply is a relative term – related to price and time.

 SUPPLY AND STOCK

 Supply comes out of stock.

 Stock determines the potential supply.
 Stock is the outcome of production.
 Determinants of supply
o The price
o Cost of factors of production
o The state of technology
o Tax & subsidy
o Factors outside economic sphere

 Supply function : Mathematical or functional

relationship between supply and its determinants.

 Supply schedule: Tabular relationship between

the supply of a commodity at different prices over
a given period of time.

 Law of supply : “Other things remaining

unchanged, the supply of a commodity expands
with a rise in price and contracts with a fall in
price.”
 Assumptions underlying law of
supply
 Cost of production is unchanged
 No change in technique of production
 Fixed scale of production
 Government policies are unchanged
 No change in transport cost
 No speculation
 The prices of other goods held constant

 Extension and contraction of supply :

The change in the quantity of supply in accordance with the
price change ie., rise in supply due to rise in price is called
‘Extension’ and decline in supply due to fall in price is
called ‘Contraction’ and refers to the same suply curve.
 Increase and decrease in supply:
Changes caused in supply by changes in various other
determinants, the price remaining unchanged leads to
increase or decrease in supply. It causes shifts in supply
curves.