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Supply
The term supply refers to the quantity of a
good offered for sale at a given price.
Like demand, supply is always with reference
to a price and a point of time.
Earlier we learnt that an inverse relationship
exists between demand and price. In case of
supply and price, a direct, relationship exists.
Law of supply
 The law of supply states that other things
remaining equal, as the price of a commodity
increases, its supply also tends to increase.
 At higher prices, more sellers are interested to
produce more and each existing seller wants to
sell more.
 When price declines, the opposite holds good.
Supply schedule
 The law of supply could be explained with the
help of supply schedule and curve.
 Supply schedule is a statement of quantities of
good and the corresponding prices at which
producers are willing to supply.
Supply curve
 The supply curve has a positive slope and it mores
upwards to the right
 It is a graphical representation of the supply
schedule which explains the law of supply.
Supply determinants
 The supply of a commodity is determined by many
factors some of which are listed below:
i) Price of the good which is to be supplied
ii) Price of other goods
iii) Prices of factors of production
iv) Number of producers or sellers
v) Entry of new firms
vi) Technology
vii) Government policy
viii) Discovery of new raw materials
Kinds of supply elasticity
 There are two limiting cases of elasticity of
supply which are of economic significance.
i) Elasticity of supply equal to infinity
ii) Absolutely inelastic supply
 Another way of expressing the range of elasticity
is that elasticity of supply is greater than one, less
than one or equal to one.
Kinds of Elasticity of supply
Measurement of elasticity supply
 Elasticity of supply can be measured by using two
methods:
i) The point method and
ii) The Ratio method
The Point Method
 On the given supply curve the price elasticity at a
point is measured by the distance along a tangent
to the horizontal axis divided by the distance
along it to the vertical axis
The Ratio Method
 The co-efficient of elasticity of supply is obtained
by using the ratio method as follows:
 The co-efficient of elasticity of supply varies from
zero to infinity.