Supply Analysis

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.”

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

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SUPPLY AND STOCK

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Supply comes out of stock. Stock determines the potential supply. Stock is the outcome of production.

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Determinants of supply o o o o o

The price Cost of factors of production The state of technology Tax & subsidy Factors outside economic sphere

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Supply function : Mathematical or functional relationship between supply and its determinants.

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Supply schedule: Tabular relationship between the supply of a commodity at different prices over a given period of time.

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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

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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

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Extension and contraction of supply :

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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.