Download (a) Price of the good - e-CTLT

We are studying this chapter on context of
determination of PRICE OF A GOOD. Demand and
supply are two forces that determine the price of a
good. We have already seen the relation between the
change in price and the consequent change in the
demand of a good. Now we are in the process of
observing the relation between the change in price and
consequent change in the supply of the good..
MEANING
Supply in general terms , refers to the quantity of
good , which a producer is willing to bring to the
market at a particular price during a period.
The four aspects necessary in any statement about
supply are (a) Price of the good,
(b) Quantity of good to be supplied,
(c) Period of time, and
(d) Supplier’s willingness to supply the
goods.
Factors affecting supply
There are many factors that influence the supply of
a good. The most vital factors among these are .......
S.no
Factor
Relation with
the Supply .
Effect on supply
(1)
Price of the set
good.
Direct relation.
P
supply ,
(2)
Technology
Direct relation.
T
supply , T supply
(3)
No. of firms.
Direct relation.
F
supply , F supply
(4)
Price of input.
Indirect
relation.
(5)
Taxes and
rates.
Indirect
relation
(6)
Prices of related Indirect
good.
relation.
P supply
Pi
supply , Pi
supply
R
supply , R
Pr
supply , Pr
supply
supply
Supply schedule
(i) Individual producer :- A table showing different
different quantities of a good, a producer is
willing to supply , is called supply schedule of that
individual producer.
(ii) Market :- The table showing different quantities
of a good, all the producers taken together of
that good, are willing to sell at different prices ,
assuming no change in factors other than the price
influencing supply , is termed as market supply
schedule.
Individual producer
Price for Good X
Qty. Supplied of
Good X
1
10
2
20
3
30
4
40
5
50
Market supply
Price / unit
Supply by
P1
Supply by P2
Market supply
(units)
(P1+P2)
1
10
5
15
2
20
10
30
3
30
15
45
4
40
20
60
5
50
25
75
Supply curve
Individual producer :- A supply curve is the locus of
points where each point shows the quantity of a good,
which a producer is willing to sell at a given price during
a given period of time, assuming no change in all other
factors influencing supply.
Market :- Market supply for a good is defined as the
locus of points where each point shows the quantity
of good , all producers taken together are willing to
sell at a given price during a period of time assuming
no change in all factors influencing supply.
Individual producer
5
3
Market supply
The law of supply states that quantity supplied of a
good usually varies directly with its price , assuming
that all other factors determining supply remain the
same.
supply curve of a good
is usually upward
sloping.
At price OP1 , Quantity
supplied is OQ1. At price
OP2 , Quantity supplied
is OQ2. Thus price and
supply have direct
relationship.
(i) Change in Supply.
Features
(a) Change in supply is defined as the change in quantity
supplied due to non-price factors of a good.
(b) Change is referred to as increase or decrease.
(c) Change is expressed as Shift in supply curve.
(d) Fall in price of Inputs, Use of advanced technology,
Fall in price of relative goods, decrease in taxes, and
rise in No. of firms lead to the Increase in supply.
(e) Rise in price of Inputs, Use of less productive
technology, Rise in price of relative goods, increase
in taxes, and decrease in No. of firms lead to the
Decrease in supply.
Representation.
Rightward Shift
Leftward Shift
(ii) Change in Quantity supplied.
Features
(a) Change in quantity supplied is due to change in
price of the good.
(b) Change is referred to as Extension or Contraction.
(c) Change is expressed as movement along the supply
curve.
(d) If price Increases, quantity supplied increases.
If price Decreases, quantity supplied decreases.
Representation.
extension
contraction
1) What is a minimum price of a commodity ?
2) How market supply responds to improvement
in technology?
3) Why more of a commodity is offered at a
a higher price?
4) What causes downward movement along a
supply curve of a commodity ?