4
QUICK
1. Supply and Stock: Supply is the quantity of a commodity that a producer is willing to sell in the market in a
given period of time at a given price. On the other hand, stock implies the total quantity of the commodity
that can be brought into the market by him at a short-notice.
2 . Factors Affecting Supply: The following are the factors, in general, on which the supply of a commodity
depends:
(i) Price of the commodity (supply and price of the commodity are directly related. As price increases, supply
also increases and vice-versa).
(Ii) Price of related commodities (price of other goods and supply are inversely related. As price of other
goods increases, supply decreases and vice-versa).
(iii) Goals of the firm.
(iv) Prices of factors of production used in making the commodity (price of inputs and supply are inversely
related. As the price of inputs increases, supply decreases and vice-versa).
(v) State of technology (if there is technological advancement then cost of production falls, profits increases,
therefore supply increases).
(vi) Number of producers.
(vii) Future expectations regarding change in price.
(viii) Taxes and subsidies (As excise tax rate increases, supply decreases, hence they are inversely related.)
(ix) Natural factors.
(x) Means of transportation and communication.
3.Supply Function: Supply function expresses the functional relationship between the supply of a commodity
and its different determinants, such as price of commodity, price of related goods, price of factors of
production, goals of the firm's technology, etc.
Sx = f(Px, Pp T, GT&S, G…...)
4. Law of Supply: Law of supply states that supply of commodity, other things being equal, varies directly
with its price.
5.Supply Schedule: It is a table which shows various quantities of commodity which the producers are willing
to produce and sell at various prices during a given period of time.
,6. Supply Curve is the Graphic Presentation of Supply Schedule: It is of two types:
(i) Individual supply curve.
(ii) Market supply curve.
7. Reasons For Operation of Law: The Supply curve has positive slope because of the following reasons:
(i) In view of higher profits (in the state of rising prices) producers increase their production and in the state
of falling prices, supply decreases because of low profit margin.
(ii) Entry of new firms in a state of rising prices and exit of firms when prices fall.
8. Exceptions to the Law: The law of supply does not apply under the following circumstances:
(i) Vertical straight line parallel to Y-axis, in case of perishable goods and antiques.
(ii) Backward bending supply, in case of supply of laborers.
9. Change in Quantity Supplied and Change in Supply: A change in quantity supplied refers to a movement
along the same supply curve. In the movement no new supply curve is drawn whereas change in supply
means shift of the supply curve due to change in factors than product price.
10. Extension and Contraction of Supply: Expansion or extension of supply refers to increase in quantity
supplied due to rise in price of the goods. Contraction of supply refers to decrease in quantity supplied due to
fall in the price of the goods.
11. Increase and Decrease in Supply
Increase in Supply: In a shift of the supply curve, a new supply curve is drawn. When the supply of a
commodity increases due to favorable changes in factors other than price of the product's own price, it is
called increase in supply. In such a case, there is a rightward shift in the supply curve which is caused by the
following factors:
(i) Improvements in technology.
(ii) Fall in the prices of factors of production.
(iii) Changes in the goals of the firms.
(iv) Increase in the number of firms.
Decrease in Supply: When there is a decrease in supply, the supply curve shifts to the leftward. When supply
of a commodity falls due to unfavorable changes in factors other than the commodity's own price, it is called
decrease in supply. These unfavorable causes may include:
(i) Obsolete technique of production.
(ii) Increase in the price of related goods.
(iii) Increase in the cost of production.
(iv) Decrease in the number of firms.
12. Meaning of Elasticity of Supply: Elasticity of supply refers to the responsiveness of quantity supplied of a
commodity to changes in its own price. The formula for measuring elasticity of supply is:
𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑠𝑢𝑝𝑝𝑙𝑖𝑒𝑑
𝐸𝑠 =
𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒
13. Kinds of Price Elasticity of Supply: There can be five different situations of elasticity of supply:
(i) Perfectly Inelastic Supply: Which is indicated by a straight line supply curve parallel toY-axis. This is the
case of zero price elasticity of supply.
(ii) Less than Unit (E,<1): Here, the percentage change in quantity supplied is less than the percentage
change in price.
(iii) Unit Elastic Supply: Here, percentage change in quantity supplied is greater than percentage change in
price.
, (iv) Elastic Supply: It illustrates the case when percentage change in quantity supplied is greater than
percentage change in price.
(v) Perfectly Elastic Supply: In this case, supply may increase or decrease to any extent without any change
in price.
14. Factors Influencing Elasticity of Supply: The following factors affect the elasticity of supply:
(i) Nature of the commodity.
(ii) Time period.
(iii) Availability of resources and facilities.
Graphic Measurement of Elasticity of Supply: Under this method, elasticity of supply is measured at a point
on a supply curve. If the supply curve of a commodity passes through the origin it is known as unitary elastic
supply. If the supply curve of a commodity cuts the vertical axis, it will be highly elastic supply. If supply
curve of a commodity cuts horizontal axis, it will represent a less elastic supply. The formula used in this
method is:
𝐻𝑜𝑟𝑖𝑧𝑜𝑛𝑡𝑎𝑙 𝑙𝑖𝑛𝑒 𝑠𝑒𝑔𝑚𝑒𝑛𝑡
𝐸𝑠 =
𝑇𝑜𝑡𝑎𝑙 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦
(i) If any straight line supply curve originates from the point of origin, elasticity of supply will be equal to one.
(ii) Elasticity of supply will be greater than one, if straight line supply curve originates from Y-axis.
(iii) If any straight line supply curve meets X-axis to the right of point of origin, elasticity of supply will be less
than one.
1 MARK QUESTIONS
A. FILL IN THE BLANKS
1. Total quantity of a commodity available with the seller in the market at a given time is called ______.
2. Part of stock which the seller is willing to offer at a particular price is ______.
3. Advanced technology leads to ______ in supply.
4. More the price of inputs ______ is the supply.
5. The indirect tax on a commodity under new system rises from 15% to 18%, the supply curve will ______.
6. Increase in price leads to ______ of the supply curve.
7. Decrease in price leads to ______ of the supply curve.
8. Change in supply is due to ______ .
9. Change in quantity supplied is due to ______ .
10. Change in quantity supplied is also ______ along the same curve.
11. When quantity supplied does not react to change in price, supply is said to be ______ .
12. Supply curve, parallel to X-axis depicts ______ supply.
13. Straight line supply curve from the point of origin depicts ______ supply.
14. When percentage change in price is less than percentage change in quantity supplied, elasticity of supply
is ______ .
15. When % change in price is more than % change in quantity supplied, elasticity of supply is______ .
16. Other things being equal, direct relation between price and supply is known as ______ .
17. When change in supply is affected by the price alone keeping other things constant, it is known as ______ .
18. The supply curve for perishable goods is ______ .
19. Supply curve for labourers is ______ .
QUICK
1. Supply and Stock: Supply is the quantity of a commodity that a producer is willing to sell in the market in a
given period of time at a given price. On the other hand, stock implies the total quantity of the commodity
that can be brought into the market by him at a short-notice.
2 . Factors Affecting Supply: The following are the factors, in general, on which the supply of a commodity
depends:
(i) Price of the commodity (supply and price of the commodity are directly related. As price increases, supply
also increases and vice-versa).
(Ii) Price of related commodities (price of other goods and supply are inversely related. As price of other
goods increases, supply decreases and vice-versa).
(iii) Goals of the firm.
(iv) Prices of factors of production used in making the commodity (price of inputs and supply are inversely
related. As the price of inputs increases, supply decreases and vice-versa).
(v) State of technology (if there is technological advancement then cost of production falls, profits increases,
therefore supply increases).
(vi) Number of producers.
(vii) Future expectations regarding change in price.
(viii) Taxes and subsidies (As excise tax rate increases, supply decreases, hence they are inversely related.)
(ix) Natural factors.
(x) Means of transportation and communication.
3.Supply Function: Supply function expresses the functional relationship between the supply of a commodity
and its different determinants, such as price of commodity, price of related goods, price of factors of
production, goals of the firm's technology, etc.
Sx = f(Px, Pp T, GT&S, G…...)
4. Law of Supply: Law of supply states that supply of commodity, other things being equal, varies directly
with its price.
5.Supply Schedule: It is a table which shows various quantities of commodity which the producers are willing
to produce and sell at various prices during a given period of time.
,6. Supply Curve is the Graphic Presentation of Supply Schedule: It is of two types:
(i) Individual supply curve.
(ii) Market supply curve.
7. Reasons For Operation of Law: The Supply curve has positive slope because of the following reasons:
(i) In view of higher profits (in the state of rising prices) producers increase their production and in the state
of falling prices, supply decreases because of low profit margin.
(ii) Entry of new firms in a state of rising prices and exit of firms when prices fall.
8. Exceptions to the Law: The law of supply does not apply under the following circumstances:
(i) Vertical straight line parallel to Y-axis, in case of perishable goods and antiques.
(ii) Backward bending supply, in case of supply of laborers.
9. Change in Quantity Supplied and Change in Supply: A change in quantity supplied refers to a movement
along the same supply curve. In the movement no new supply curve is drawn whereas change in supply
means shift of the supply curve due to change in factors than product price.
10. Extension and Contraction of Supply: Expansion or extension of supply refers to increase in quantity
supplied due to rise in price of the goods. Contraction of supply refers to decrease in quantity supplied due to
fall in the price of the goods.
11. Increase and Decrease in Supply
Increase in Supply: In a shift of the supply curve, a new supply curve is drawn. When the supply of a
commodity increases due to favorable changes in factors other than price of the product's own price, it is
called increase in supply. In such a case, there is a rightward shift in the supply curve which is caused by the
following factors:
(i) Improvements in technology.
(ii) Fall in the prices of factors of production.
(iii) Changes in the goals of the firms.
(iv) Increase in the number of firms.
Decrease in Supply: When there is a decrease in supply, the supply curve shifts to the leftward. When supply
of a commodity falls due to unfavorable changes in factors other than the commodity's own price, it is called
decrease in supply. These unfavorable causes may include:
(i) Obsolete technique of production.
(ii) Increase in the price of related goods.
(iii) Increase in the cost of production.
(iv) Decrease in the number of firms.
12. Meaning of Elasticity of Supply: Elasticity of supply refers to the responsiveness of quantity supplied of a
commodity to changes in its own price. The formula for measuring elasticity of supply is:
𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑠𝑢𝑝𝑝𝑙𝑖𝑒𝑑
𝐸𝑠 =
𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒
13. Kinds of Price Elasticity of Supply: There can be five different situations of elasticity of supply:
(i) Perfectly Inelastic Supply: Which is indicated by a straight line supply curve parallel toY-axis. This is the
case of zero price elasticity of supply.
(ii) Less than Unit (E,<1): Here, the percentage change in quantity supplied is less than the percentage
change in price.
(iii) Unit Elastic Supply: Here, percentage change in quantity supplied is greater than percentage change in
price.
, (iv) Elastic Supply: It illustrates the case when percentage change in quantity supplied is greater than
percentage change in price.
(v) Perfectly Elastic Supply: In this case, supply may increase or decrease to any extent without any change
in price.
14. Factors Influencing Elasticity of Supply: The following factors affect the elasticity of supply:
(i) Nature of the commodity.
(ii) Time period.
(iii) Availability of resources and facilities.
Graphic Measurement of Elasticity of Supply: Under this method, elasticity of supply is measured at a point
on a supply curve. If the supply curve of a commodity passes through the origin it is known as unitary elastic
supply. If the supply curve of a commodity cuts the vertical axis, it will be highly elastic supply. If supply
curve of a commodity cuts horizontal axis, it will represent a less elastic supply. The formula used in this
method is:
𝐻𝑜𝑟𝑖𝑧𝑜𝑛𝑡𝑎𝑙 𝑙𝑖𝑛𝑒 𝑠𝑒𝑔𝑚𝑒𝑛𝑡
𝐸𝑠 =
𝑇𝑜𝑡𝑎𝑙 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦
(i) If any straight line supply curve originates from the point of origin, elasticity of supply will be equal to one.
(ii) Elasticity of supply will be greater than one, if straight line supply curve originates from Y-axis.
(iii) If any straight line supply curve meets X-axis to the right of point of origin, elasticity of supply will be less
than one.
1 MARK QUESTIONS
A. FILL IN THE BLANKS
1. Total quantity of a commodity available with the seller in the market at a given time is called ______.
2. Part of stock which the seller is willing to offer at a particular price is ______.
3. Advanced technology leads to ______ in supply.
4. More the price of inputs ______ is the supply.
5. The indirect tax on a commodity under new system rises from 15% to 18%, the supply curve will ______.
6. Increase in price leads to ______ of the supply curve.
7. Decrease in price leads to ______ of the supply curve.
8. Change in supply is due to ______ .
9. Change in quantity supplied is due to ______ .
10. Change in quantity supplied is also ______ along the same curve.
11. When quantity supplied does not react to change in price, supply is said to be ______ .
12. Supply curve, parallel to X-axis depicts ______ supply.
13. Straight line supply curve from the point of origin depicts ______ supply.
14. When percentage change in price is less than percentage change in quantity supplied, elasticity of supply
is ______ .
15. When % change in price is more than % change in quantity supplied, elasticity of supply is______ .
16. Other things being equal, direct relation between price and supply is known as ______ .
17. When change in supply is affected by the price alone keeping other things constant, it is known as ______ .
18. The supply curve for perishable goods is ______ .
19. Supply curve for labourers is ______ .
