ALIGARH COLLAGE OF

ENGINEERING
AND
TECHNOLOGY, ALIGARH

PROJECT REPORT
ON
SUPPLY
Name: Mansi Varshney
BBA 1ST year (II Semester)
Session: 2017-18
Roll-on: 1701925071017
 INDEX:
SNO. TOPICS:

1. Introduction of supply

2. Types of supply

3. Law of supply

4. Assumptions of law of supply

5. Exceptions of law of supply

6. Supply Function

7. Shift in supply curve

8. Movement along supply curve

9. Increase and Decrease in supply curve

10. Expansion and Contraction in supply curve

11. Conclusion
 INTRODUCTION OF SUPPLY:
A Relation between price and quantity before proceed with the meaning of
supply , it is important to understand some special features of supply :
• Supply in a desired quantity :It indicates only the willingness ,i.e., how much
the firm is willing to sell and not how much it actually sells.
• Supply of a commodity does not comprise the entire stock of the commodity: It
indicates the quantity that the firm is willing to bring in the market at a particular
price for ex – supply of T.V by Samsung in the market.

Supply refers to a quantity of a commodity that a firms willing and able to

offer for sale at a given price during a given period of time. The definitionof
supply highlights 4 essential elements:
a. Quantity of a commodity
b.Willingness to sell
c.Price of the commodity
d. Period of time Like demand and supply also can be either for a single seller
(Individual supply) or for all the sellers).
 TYPES OF SUPPLY:
1.Individual supply: Individual supply refers to quantity of a commodity that an
individual firm is willing and able to offer for sale at a given price during a given
period of time.
2.Marketsupply: Market supply refers to quantity of a commodity that all the firms
are willing and able to offer for sale at a given price during a given period of time.
 LAW OF SUPPLY:
The law of supply states that, other things remaining the same, the
quantity supplied of a commodity is directly or positively related to
its price. In other words, when there is a rise in the price of a
commodity the quantity supplied of it in the market increases and
when there is a fall in the price of a commodity, its quantity
supplied decreases, other things remaining the same. Thus, the
supply curve of a commodity slopes upward from left to right
 ASSUMPTION OF LAW OF SUPPLY:

While stating law of supply, the phrase ‘keeping other factors

constant ceteris paribus’ is used. This phrase is used to cover the
following assumptions on which the law based:
1. Price of other goods are constant;
2. There is no change in the state of technology;
3. Prices of factors of production remain the same;
4. There is no change in the taxation policy
5. Goals of the producer remain the same.
 EXCEPTIONS OF LAW OF SUPPLY;
1.Auction Sale: The law of supply states that quantity supplied
increases with increase in price and vice-versa. But this law
doesn’t hold true in case of auction sale. An auction sale takes
place at that time when the seller is in financial crisis and needs
money at any cost.
2.Price expectation of seller: If the seller expects that the price of
commodity is going to fall in near future, he will try to sell more
even if the price level is very low. On the other hand, if the seller
expects further rise in price of the commodity he will not sell more
even if the price level is high. It is against the law of supply.
3.Stock clearance sale: When a seller wants to clear its old stock in
order to store new goods, he may sell large quantity of goods at
heavily discounted price. It is also against the law of supply.
 4.Fear of being out of fashion: As we know that quantity supplied of a
commodity is affected by fashion, taste and preferences of the consumer,
technology and time. If the seller thinks that the goods are going to be
outdated in the near future, he sells more at a lower price which is also
against the law of supply.
5.Perishable goods: Those goods which have very short life-time and
they become useless after that are all perishable goods. Those goods
must be made available in the market at its right time whatever be its
price. So the seller becomes ready to sell his goods at any offered price.
It is also against the law of supply.
 SUPPLY FUCTION:
Innumerable factors and circumstances could affect a seller's willingness or ability to
produce and sell a good. Some of the more common factors are:

1. Good's own price: The basic supply relationship is between the price of a good and
the quantity supplied. Although there is no "Law of Supply", generally, the
relationship is positive, meaning that an increase in price will induce an increase in
the quantity supplied.
2. Prices of related goods: For purposes of supply analysis related goods refer to
goods from which inputs are derived to be used in the production of the primary
good.
For example, Spam is made from pork shoulders and ham.
Both are derived from pigs. Therefore, pigs would be considered a related good to
Spam. In this case the relationship would be negative or inverse. If the price of pigs
goes up the supply of Spam would decrease (supply curve shifts left) because the
cost of production would have increased.
3.Conditions of production:
The most significant factor here is the state of technology. If there is a technological
advancement in one good's production, the supply increases. Other variables may
also affect production conditions. For instance, for agricultural goods, weather is
crucial for it may affect the production outputs.
4.Expectations:
Sellers' concern for future market conditions can directly affect supply. If the seller
believes that the demand for his product will sharply increase in the foreseeable
future the firm owner may immediately increase production in anticipation of future
price increases. The supply curve would shift out.

5.Price of inputs:
Inputs include land, labor, energy and raw materials. If the price of inputs increases
the supply curve will shift left as sellers are less willing or able to sell goods at any
given price. For example, if the price of electricity increased a seller may reduce his
supply of his product because of the increased costs of production.
6.Number of suppliers:
The market supply curve is the horizontal summation of the individual supply curves.
As more firms enter the industry the market supply curve will shift out driving down .
7.Government policies and regulations:
Government intervention can have a significant effect on supply. Government
intervention can take many forms including environmental and health regulations, hour
and wage laws, taxes, electrical and natural gas rates and zoning and land use
regulations.
8.Number of suppliers:
The market supply curve is the horizontal summation of the individual supply curves.
As more firms enter the industry the market supply curve will shift out driving down
prices.

9.Government policies and regulations:

Government intervention can have a significant effect on supply. Government
intervention can take many forms including environmental and health regulations, hour
and wage laws, taxes, electrical and natural gas rates and zoning and land use
regulations.
 This list is not exhaustive. All facts and circumstances that are relevant to a seller's
willingness or ability to produce and sell goods can affect supply. For example, if the
forecast is for snow retail sellers will respond by increasing their stocks of snow sleds
or skis or winter clothing or When price changes, quantity supplied will change. That is
a movement along the same supply curve. When factors other than price changes,
supply curve will shift. Here are some determinants of the supply curve.

1. Production cost:
Since most private companies’ goal is profit maximization. Higher production cost will
lower profit, thus hinder supply. Factors affecting production cost are: input prices,
wage rate, government regulation and taxes, etc.

2. Technology:
Technological improvements help reduce production cost and increase profit, thus
stimulate higher supply.
3. Number of sellers:
More sellers in the market increase the market supply.
4. Expectation for future prices:
If producers expect future price to be higher, they will try to hold on to their inventories and offer
the products to the buyers in the future, thus they can capture the higher price.
SHIFT IN SUPPLY CURVE (CHANGE
IN SUPPLY):
Supply curve is drawn to show the relationship between price and quantity supplied
of a commodity, assuming all other factors being constant. However, other factors are
bound to change sooner or later. A change in one of 'other factors' shifts the supply
curve.
For example, an increase in excise duty on a commodity will raise its cost of
production. With fall in profit margin, producers may decrease its supply, even though
its market price has not changed. Such decrease in supply, whose price has not
changed, cannot be represented by the original supply curve, it will lead to a shift in
supply curve when supply of a commodity changes due to change in any factors other
than the own price of the commodity, It is known as 'change in supply' it is graphically
expressed as a shift in the supply curve.
 MOVEMENT ALONG SUPPLY
CURVE:
When quantity supplied of a commodity change due to change in its own price
keeping other factor constant ,it is known as the change in quantity supplied .It is
graphically expressed as a movement along the same supply curve . There can be
either a downward movement or an upward movement along the same supply
curve.
 INCREASE IN SUPPLY CURVE:
Increase in supply refers to a rise in supply of a commodity caused due to any factor
other than the own price of the commodity..In this case supply rises in the same price or
supply remains same even at the low price. It leads to rightward shift in the supply
curve .
 DECREASE IN SUPPLY CURVE:
Decrease in supply refers to a fall in the supply of a commodity caused
due to any factor other than the own price of the commodity. In this
case supply falls at the same price or supply remains same even at
higher price . It leads to leftward shift in the supply curve.
 EXPANSION IN SUPPLY CURVE:
• Expansion of supply, like that of demand, refers to a movement along the supply curve
in response to changes in price. A rise in price, other things remaining same, leads to a
rise in supply. Refer to
• Increase in supply refers to a downward to right shift in the supply curve resulting from
a favorable change in one of the shift factors. The shift factors, here, are all the
determinants of supply except the price of the product offered by the market.
For instance, if an improvement in technology or an advanced technology is
adopted, more will be produced and supplied at the same price. In like manner,
if input prices fall or subsidy is granted, production cost declines and more can
be produced and supplied at the same price. An increase in supply generally
leads to a downward parallel shift in the supply curve.
 CONTRACTION IN SUPPLY CUVE:
• Contraction of supply is just opposite of its expansion. A fall in price offered
leads to a fall in supply. It results in a downward movement along the supply
curve
• Likewise, decrease in supply is just opposite of an increase in it. An unfavorable
change in one of the shift factors leads to an upward to left shift in the supply
curve. As mentioned earlier, the shift factors refer to all the other determinants
of supply except the price offered by the market for the product. For instance, a
rise in input prices, or a levy of excise duty raises the production cost and hence
lowers the supply despite no change in price offered for the product by the
market
 CONCLUSION:

We have learned that when you buy a good from a firm in a

competitive market, you can be assured that the price you pay is
close to the cost of producing that good. In particular, if firms are
competitive and profit maximizing, the price of a good equals the
marginal cost of making that good. In addition, if firms can freely
enter and exit the market, the price also equals the lowest possible
average total cost of production.

Although we have assumed throughout this chapter that firms are

price takers, many of the tools developed here are also useful for
studying firms in less competitive markets. We now turn to an
examination of the behavior firms with market power. Marginal
analysis will again be useful, but it will have quite different
implications.