supply n law of supply

1. Shakeel Ahmed Qureshi

2. Quantity of a good which is offered for sale in
the market at specific price is called supply of
the good.
Price
Demand
Supply
Stock
Customer
Supplier
The rest part of the total
production which is not
offered for sale at that
price is called stock.

3. Supply Stock
Supply is the quantity of the
good which is offered for sale.
Stock is the quantity of the
good which is not offered for
sale in the market.
Supply is present in the
market.
Stock is kept in warehouses.
Supply is associated with
some price.
Stock has no price.
Difference between
Supply and Stock

4. Law of Supply
There is a direct relationship between price and quantity supplied.
When the price of any commodity increases its supply increases and
when price decreases its supply also decreases by keeping all other
factors constant.
Price Supply Price Supply
Qs = f(P)
Qs = -c + dP
Definition

5. Law of Supply
Assumptions:
1.It is assumed that the Cost of production remain constant during
the production process.
2.There is no change in method of production and technology.
3.Tax policy of the government remains unchanged.
4.It is assumed that there is no change in the rewards of factors of
production.

6. P Qs
10 200
20 400
30 600
40 800
50 1000
Law of Supply
P
Qs
10
20
30
40
50
2000
S
S
a
b
c
d
e
400 600 800 1000

7. Explanation:
In the demand curve the price is shown on the vertical axis and the
quantity supplied is shown on horizontal axis. SS is Supply curve which is
plotted according to the schedule. SS has a positive slope, which explains
that as price increases supply expands. It represent that at point "b" price
per unit is Rs. 20/- while supply is 400 units. Similarly point "e" explains
quantity demand 1000 units at the price of Rs. 50/- per unit.
The supply curve has a upward slope from left to right. It shows that due to
the increase in the price of product, the seller offers more quantity for sale.
As the price of a good decreases the seller starts to stock the good and
decreases the supply of that good.
Law of Supply

8. Law of Supply
Criticism:
Sometime it can also happen that the law of supply is not followed due to
the following possible reasons.
1. It is assumed that the Cost of production remain constant during the
production process. But if the cost of production decreases then the
supply of the product may not fall even at lower price.
2. The goods are produced on large scale due to new technology and better
production methods and the supply may increase at a lower price.
3. If government reduces the tax on the firm and on the import of raw
material then the supply of the good will increase at a less price.
4. If the wages of labour are increased then the cost of production also
increases. Hence the supply may reduce even at a higher price.

9. Different Kinds of Supply
Joint Supply: The supply of two or more than two goods which are produced and
supplied together is called joint supply. For example beef and bone, milk and cream.
Compound Supply: The supply of a product which is obtained from different
resources but the product is same; is called compound supply. For example the supply
of petrol. It is obtained from different resources like Shell petroleum, PSO, CALTEX,
PARCO, etc but the product is same that is petrol. Another example of compound
supply is milk which is obtained from different resources like goat, sheep, cow and
buffalo; but the product is one that is milk.

10. Market Period Supply: A very short period of time (for example two to three hours) is
called market period. In this period the supply of the good cannot be changed rapidly.
Market period supply is further classified into two categories.
Market Period
Supply
Market period
Supply of
Perishable goods
Market period
Supply of
Durable goods
Different Kinds of Supply

11. Supply of durable goods in market period: Supply of
durable goods in market period increases with the price to a
limited extent. Once the whole stock is supplied then further
increase in the supply is not possible even at higher prices.
Its curve is upward sloping and then it becomes vertical.
P
Qs
S
S
o
P
Qs
S
S
o
Supply of Perishable good in market period: Supply of
perishable good in market period remains inelastic
(unchanged) because the perishable goods cannot be stored for
a longer period of time hence supplier is unable to supply
more quantity of the good even at higher prices. The supply
curve becomes vertical (parallel to the Y- axis) as shown in the
figure
Different Kinds of Supply

12. P
Qs
S
S
O
P
Qs
S
S
O
Short Run Supply: The supply of the good is strongly
determined by the period of time. If the product is to supply
in a shorter period of time then it is very less effected by the
change in the prices. So in this case the supply curve
becomes a steeper supply curve.
Long Run Supply: Long run in the market refers to a
comparatively larger period of time in which the supply of
the goods can be adjusted to increased and decreased demand
and ultimately the prices of the goods. In this period of time
the supply curve often becomes flatter and shows a greater
elasticity.
Different Kinds of Supply

13. Shakeel Ahmed Qureshi