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Supply Amity School of Business Supply: of a good refers to the quantity of that good that a firm or an industry is willing to sell or produce at a particular price during a particular period of time. Factors affecting Supply Amity School of Business • • • • • • • Expected profits from sale (determined by selling price) Price of production substitutes Cost of Production (price of inputs) State of Technology Goals & objectives of firm (supplier) Extent of competition in the industry Government’s policies (controls, subsidies, tax & excise incentives etc.) • Means of transportation, rail-road-air connectivity, communication, Banking & insurance, irrigation facilities, electricity etc. • Natural factors – fertility of land, climatic conditions (monsoons, change in seasons), floods, drought, earthquake etc. Law of Supply Amity School of Business • Law of Supply: States that other factors affecting supply kept constant, as the price (selling) of a good rises, its quantity supplied rises and vice-versa. Supply Curve Amity School of Business Amity School of Business Changes in Quantity Supplied versus Change in Supply • Changes in Quantity Supplied: a movement along the supply curve. This happens because of change in commodity’s own price. • Change in Supply: a shift in the supply curve. This happens because of change in any of the factors affecting supply, other than commodity’s own price. – Increase in supply: a shift to the right. – Decrease in supply: a shift to the left. A Change in Supply versus a Change in Quantity Supplied Amity School of Business Price Elasticity of Supply Amity School of Business • A measure of the extent to which the quantity supplied of a good changes when its price changes, all other factors affecting supply remaining the same (ceteris paribus). • Price Elasticity of Supply (Es) = % Change in Quantity Supplied % Change in Price Factors determining Elasticity of Supply Amity School of Business • Ease with which increases in output can be obtained without much rise in selling price. • Response of producers to changes in price - at times they may not exhibit profit maximizing behaviour • Availability of inputs • Possibility (ease) of substitution of one product by the other (s) • Length of time available to producers during which they have to respond to a given change in price of the product. Equilibrium of Supply and Demand Amity School of Business Price of Ice-Cream Cone Supply 3.00 Equilibrium 2.50 2.00 1.50 1.00 Demand 0.50 0 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of Ice-Cream Cones