Law of Supply
SUPPLY:
Supply means the quantity of service
offered by a producer for sale at different unit prices in a given market at
given point of time.
According to Meyers, “A schedule of
the amount of good that would be offered for sale at all possible prices at any
one instance of time in which the condition of supply remains the same”.
Market
Supply:
It is the sum of the quantity of a commodity that is brought into a market for sale by the sellers in a given
market at a specific time. Quantity supplied is the amount of a good that sellers
are willing and able to sell. Graphically, individual supply curves are summed
horizontally to obtain the market supply curve.
LAW
OF SUPPLY – Statement
The law signifies the positive
relationship i.e. as the price of a commodity rises its supply extends and as
the prices fall in its supply contracts, with other things remaining the same.
The other factors particularly
includes technology, use of the factor of production, price of relative product
remains the same.
It means supply directly varies with
the price, ceteris paribus. Varies directly means as price raises the quantity
offered increases and as it falls, the quantity offered decreases. It should be
noted that in the case of ‘demand’ quantity varies inversely with the price i.e. as
price rises, demand decreases, and vice versa.
EXCEPTIONS
FOR LAW OF DEMAND:
There are some exceptions to the law of
demand.
1. Auction:
In an auction, goods are sold away whatever the bid. It is possible that the seller
is in need of money and wants a certain amount of money.
2. Market
Conditions: When a heavy fall in prices expected due to panic condition, seller
will sell more even if the price falls.
3. Business
Closing: During the times of business closure the owner has to sell all his
stock irrespective of the price incurred.
4. Market
Competition: Due to cut-throat competition in the market different market
players supply the commodities at a lesser price to get the leading position in the
arena.
5. Perishable
Commodities: With less shelf life of perishable commodities, rather than to
waste it, the producer has to sell it at lower prices.
6. Rare
Articles, Artisans, and Paintings: Some rare articles are limited in source
hence could not able to supply though the price could be more.
The law of supply further explained
with the following two curves.
1) Extension
and Contraction of supply (Movement along the supply curve):
When the quantity offered for sale
increases or decreases due to rise or fall in prices, extension and contraction
of supply arises. Here, the supply schedule is the same and we move up and down
the same supply curve.
Extension of supply means that more is offered at a higher price, while an increase in supply signifies that either more is offered at the same price or the same quantity is offered at a lower price as shown in Fig 1. Graphically it shows that there is upward movement from S3 to S2 is an extension of the supply curve. The downward movement of S1 to S2 is the contraction of supply.
2) Increase
and Decrease in Supply (Shift in Supply Curve):
When the change in quantity offered for the sale is not due to a change in price, but due to a change in the condition of
supply, then supply is either increased or decreased one. It means that supply the curve has shifted from the previous position to new position as shown in Fig 2.
Contraction and decrease in supply are
the contradictory to extension and increase in supply respectively. Contraction
of supply means that less is offered at a lower price, but a decrease in supply
means that less is offered at the same price or the same quantity is offered at
a higher price.
Graphically, an increase in supply
results in the shift of the supply curve towards the right side and the formation of
new supply curve S1S1. During the decrease in supply, there is a shift of the supply curve towards the left side and the formation of a new curve
S2S2. Hence, at the same price OP, supplying a quantity of
commodity OQ’ indicating an increase in supply.
The elasticity of Supply:
It refers to the sensitiveness or
responsiveness of the supply to a change in price. It means elasticity measures
the adjustability of the supply of a commodity to price.
The elasticity of supply (Price Elasticity
of supply) is expressed as the ratio of the percentage change in the quantity of
good supplied and percentage change in the price of the good, ceteris paribus.
Degrees of Elasticity of supply is
divided into five groups as like Elasticity of Demand.
1.
Perfectly Elastic Demand (Es = Infinity)
2.
Perfectly Inelastic Demand (Es=0)
3.
Relative Elastic Demand (Es>1)
4.
Relative Inelastic Demand (Es<1)
5. Unitary
Elastic Demand (Es=1).
Factors
causing changes in supply:
Following are the
factors responsible for changes in supply.
1. Technology:
Due to innovations in technology results in an increase in the yields per unit
area.
2. Natural
Conditions: During the period of good harvesting bumper production achieved and natural calamities like floods, cyclones, droughts adverse effects on
production. This condition brings about a change in the supply.
3. Input
Prices: When the prices of input become cheaper producers use more input and the supply curve shifts towards the right side and vice versa. It typically impacts
the price of the factor of production for commodities.
4. Market
Infrastructure: If good communication and transport network increases then,
supply of the commodity also increases.
5. Expectations:
Price expectations influence the marketing strategies of the producers in a
positive way.
6. Number
of producers: More the number of producers there will be greater supply and
vice versa.
7. Fiscal
Policy: Fiscal policies formulated by the government have an impact on the
supply curve. The higher import duty restricts the supply and lower duty will
inspire the supply.
8. Relative
price of other products: A reduction in the price of related goods forces the
producer to increase the production of goods at higher prices.
YouTube Video:
https://www.youtube.com/channel/UCDul7uf7pcbM_kWCEaA9WvA
No comments:
Post a Comment