Supply – Meaning, Law & Determinants

So far we studied demand (from consumer side). Now we study supply (from producer side).

1. Meaning of Supply

Supply of a commodity is the quantity that producers are willing and able to offer for sale at different prices, during a given period of time.

Important elements:

• Quantity offered for sale
• At different prices
• Per unit of time (per day, per week, per month)

2. Law of Supply

Other things being equal, the quantity supplied of a commodity increases when its price rises and decreases when its price falls.

So, price ↑ → supply ↑, and price ↓ → supply ↓ (direct relationship).

Supply Schedule (Example)

Supply Curve

• Plot price on Y-axis and quantity supplied on X-axis.
• Join the points → upward sloping supply curve.

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3. Reasons for Upward Sloping Supply Curve

1. Profit Motive – Higher price → more profit per unit → producers expand supply.
2. Law of Increasing Marginal Cost – To increase output, firms may have to use less efficient resources → cost per unit increases → require higher price.
3. New Firms Enter the Industry – Higher prices attract new firms, increasing market supply.

4. Determinants (Factors Affecting Supply)

1. Price of the Good – main factor (already covered in law of supply).

2. Prices of Inputs (Factors of Production)

   • If wages, raw material prices rise → cost of production ↑ → supply ↓.

3. Technology

   • Better technology → lower cost → supply ↑.

4. Government Policy (Taxes & Subsidies)

   • Higher tax → cost ↑ → supply ↓.
   • Subsidy → cost ↓ → supply ↑.

5. Prices of Related Goods

   • If price of wheat rises, farmers may shift from rice to wheat → supply of rice ↓.

6. Future Price Expectations

   • If producers expect higher future price, they may withhold current supply.

7. Natural Factors

   • Weather, rainfall, natural calamities affect agricultural supply.

8. Number of Firms in the Industry

   • More firms → supply ↑; fewer firms → supply ↓.

5. Movement vs Shift in Supply Curve (Brief)

• Movement along supply curve:

  • Due to change in price of the same good.
  • Price rise → expansion of supply; price fall → contraction of supply.

• Shift of supply curve:

  • Due to change in other factors (input prices, technology, tax, etc.).
  • Supply ↑ at all prices → rightward shift; supply ↓ → leftward shift.

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6. Quick Revision Points

• Supply: quantity offered for sale at different prices in a given time.
• Law of supply → direct relation between price and quantity supplied.
• Supply curve slopes upwards.
• Determinants: input prices, technology, policy, related goods, expectations, natural factors, number of firms.
• Movement vs shift of supply curve is a common exam question.

7. Quiz Time 🎯

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