Chapter - 2
Thoery of Demand and Supply
Unit -3 Supply
(i) Supply refers to what a firm offer for sale in the market, not necessarily to what they succeed in selling. What
is offered may not get sold.
(ii) Supply is a flow.
◼ Total Determinants of Supply
(i) Price of the good:
(ii) Prices of related goods:
(iii) Prices of factors of production:
(iv) State of technology:
(v) Government Policy:
(vi) Nature of competition and size of industry:
(vii) Expectations:
(viii) Number of sellers:
• Other Factors: The quantity supplied of a good also depends upon government's industrial and foreign
policies, goals of the firm, infrastructural facilities, natural factors such as weather, floods, earthquake
and man- made factors such as war, labour strikes, communal riots etc.
1. Price of own Good
P ⎯⎯ →S
Direct positive relation
P ⎯⎯ →S
2. Price of Related Goods
PY ⎯⎯ → SX
PY ⎯⎯
→ SX
3. Price of factors of Production
Priceof input ⎯⎯ → Production cost ⎯⎯
→ Profit Margin ⎯⎯
→ Supply
4. State of Technology
Advanced Old
Cost-Saving Expenses
Profit Supply
Supply
1 Theory of Demand & Supply
, 5. Number of Sellers
No.of Sellers ⎯⎯→ Supply
6. Expectations:
An increase in the anticipated future price of a good or service reduces its supply today; and if
sellers expect a fall in prices in future, more will be supplied now.
7. Nature of competition and size of industry:
Under competitive conditions, supply will be more than that under monopolized conditions.
8. Govt. Policy:
Tax→ S Tax → S
Subsidy → S
Restriction → Ban – Import Quota
◼ The Law of Supply
P → S
P → S
This law states that, if other factors are same,(Ceteris Paribus) then there is direct relationship b/w Price of
Qty. SS.
P → S→ offer for sale
P → S
◼ Supply Curve
1. Upward slopping
2. Positivity sloped
P
3. Slope =
Q
2 Theory of Demand & Supply
Thoery of Demand and Supply
Unit -3 Supply
(i) Supply refers to what a firm offer for sale in the market, not necessarily to what they succeed in selling. What
is offered may not get sold.
(ii) Supply is a flow.
◼ Total Determinants of Supply
(i) Price of the good:
(ii) Prices of related goods:
(iii) Prices of factors of production:
(iv) State of technology:
(v) Government Policy:
(vi) Nature of competition and size of industry:
(vii) Expectations:
(viii) Number of sellers:
• Other Factors: The quantity supplied of a good also depends upon government's industrial and foreign
policies, goals of the firm, infrastructural facilities, natural factors such as weather, floods, earthquake
and man- made factors such as war, labour strikes, communal riots etc.
1. Price of own Good
P ⎯⎯ →S
Direct positive relation
P ⎯⎯ →S
2. Price of Related Goods
PY ⎯⎯ → SX
PY ⎯⎯
→ SX
3. Price of factors of Production
Priceof input ⎯⎯ → Production cost ⎯⎯
→ Profit Margin ⎯⎯
→ Supply
4. State of Technology
Advanced Old
Cost-Saving Expenses
Profit Supply
Supply
1 Theory of Demand & Supply
, 5. Number of Sellers
No.of Sellers ⎯⎯→ Supply
6. Expectations:
An increase in the anticipated future price of a good or service reduces its supply today; and if
sellers expect a fall in prices in future, more will be supplied now.
7. Nature of competition and size of industry:
Under competitive conditions, supply will be more than that under monopolized conditions.
8. Govt. Policy:
Tax→ S Tax → S
Subsidy → S
Restriction → Ban – Import Quota
◼ The Law of Supply
P → S
P → S
This law states that, if other factors are same,(Ceteris Paribus) then there is direct relationship b/w Price of
Qty. SS.
P → S→ offer for sale
P → S
◼ Supply Curve
1. Upward slopping
2. Positivity sloped
P
3. Slope =
Q
2 Theory of Demand & Supply
