Supply Analysis

Meaning

Supply means the quantity of a commodity that the sellers are willing and able to offer for sale at a particular price at any given time.

Law of supply:

The quantity supplied varies directly with price; when price falls, supply will contract and when price rises, supply will extend.

Determinants of supply: The supply of a commodity depends upon the

goals of firms:

The supply of a commodity increase if its producers desire to sell as much as possible, even at the cost of profits. Supply is reduced if the producers desire to derive maximum profits. If producers desire to produce more of luxury items than necessaries the supply of luxuries increase & the supply of necessaries is reduced.

Price of the good:

The higher the relative price of a good, the greater the quantity of it that will be supplied. This is because goods and services are produced by the firm in order to earn profits, profits rise if the price of its product rises.

Technology:

Inventions and innovations tend to make it possible to produce more or better goods with the same resources & thus they tend to be increase the quantity supplied of some products & to reduce the quantity supplied of products that are displaced.

Government policy:

Ex: Sales tax, excise duty.

Improvement in transport & communication:

This will facilitate free & quick movements of goods & services from production centers to marketing centers.

Elasticity of Supply:

Perfectly Elastic Supply-

When a slight change in price leads to immeasurable changes in supply.

Perfectly Inelastic Supply:

When a supply of a commodity remains constant & does not change in whatever may be the change in price, it is said to be absolutely or perfectly inelastic supply.

Relatively Elastic Supply:

If changes in supply is more than proportionate to the change in price, elasticity of supply is greater than one.

Relatively Inelastic Supply:

If the change in supply is less than proportionate to a given change in price, then elasticity of supply is said to be less than one.

Unitary Elastic Supply:

If proportionate change in supply is exactly equal & proportionate to the change in price, then elasticity of supply is equal to one.

Supply Schedule:

Supply schedule is a tabular representation of different quantities of a commodity supplied at varying prices. It represents the functional relationship between quantity supplied & price.