Ch:3 Supply Flashcards
Meaning of supply
Supply means the quantity of a commodity offered for sale in market at a certain price during a given period of time. For example
If the price of flour us RS 15 per kg in the market and 1000 kg flour is offered at market for sale, then the supply of flour will be 1000 kgs
Differentiate between supply and stock
The total quantity of a commodity available in the market or in the possession of the sellers at some period of time is called stock.
Whereas supply is the quantity which is offered for sale at a certain price out of the present stock.
For example: if the sellers have total 500 tons of sugar at some period of time, it is called stock
If they offer 300 tons of sugar out of 500 tons for sale at price rs 30 per kg in the market, it will be called supply.
Differentiate between extension and contraction of supply
According to law of supply,
When the price if a commodity increases, its supply increases. It is called extension of supply.
Conversely, when the price of commodity decreases, its supply also decreases . It is called contraction of supply.
Different between rise and fall of supply
When supply of a commodity increases owing to other factors rather than price, it is called rise of supply.
When supply of a commodity decreases owing to other factors rather than price, it is called fall of supply.
Define elasticity of supply
Elasticity of supply is the degree of responsiveness of supply of a commodity to a change in it’s price.
Law of supply
If all other things remain constant, the quantity supplied if a commodity increases as a result of an increase in it’s price and vice versa.
Write formula of measurement of elasticity of supply
Following is the formula to measure the elasticity of supply
∆q/∆p × p/q
What is the tendency of supply curve
Supply curve has the tendency to move from left to right upward
It means it’s slope is positive.
Why is slope of supply curve positive
Positive slope of supply curve means that supply of a commodity increases due to the increase in it’s price. The following are it’s reasons.
Due to increase in price, profit of the seller increases. So they increase the supply.
In future there is a chance if falling the price, so at the current increase in price, the sellers increase the supply
In order to cover the increase in per unit cost of production, it is necessary to offer more quantity of commodity to sell in the market.
Write exceptions limitations of the law of supply
The law of supply does not prove true under following circumstances:
When the sellers are extremely in need of cash
When there are strikes or lock outs due to resentment between the labourers and entrepreneurs or there is situation of anarchy and war in the country
When entrepreneurs and sellers have to shift themselves suddenly from one place to another place
When the means of transport are badly effected due to bad weather and floods etc
Write the methods of measurement of elasticity of supply
The method of measurement of elasticity of supply are three
Percentage method
Proportional method
By mathematical formula
What is meant by zero elasticity of supply
If the change in price doesn’t affect the quantity supplied and the quantity supplied remains constant, it is said that elasticity of supply is zero. In this case, supply curve is vertical or parallel bto OY axis
What is meant by infinite elasticity of supply
If the quantity supplied reduces to zero at slight decrease in price, and the quantity supplied extends to infinity at a slight increase in price. The elasticity of supply is said to be infinite. The curve if this kind of supply is horizontal and parallel to ox axis
What is meant by elasticity of supply equal to unity
If the rate of change in supply and price is equal, elasticity of supply is said to be equal to unity
Elasticity of supply greater than unity
If the ratio of change in supply is greater than that of price, elasticity of supply is said to be greater than unit.
Elasticity of supply less than unity
If the ratio of change in supply is less than that of price, elasticity of supply is said to be less than unity
Write 4 assumptions of law of supply
Cost of production should not change
Production technique should not change
The natural resources of country should not change
There should be no restriction on the increase in production by the government
Write five causes of change in supply
Change in price
Change in cost of production
Change in technique of production
Change in law and order situation
Change in weather
Write four determinants of elasticity of supply
Nature of commodity
Cost of production
Nature of production process
Production capacity of industry
What is meant by composite supply
If a commodity is obtained from different means, then it’s supply is the total quantity obtained from all such means which is called composite supply.
Forexample, milk is obtained from buffalo, cow and goat etc
What is meant by joint supply
Joint supply means the supply of those goods which are produced jointly forexample cotton and cotton seed, wheat and chaff.
Competing supply
There are some commodities whose supply competes with each other it means if supply of a commodity is increased for one use, then it’s supply for some other use decreases.
Forexample if the supply of wood is increased for manufacturing furniture,then it’s supply for burning will decrease
Write kinds of supply according to the period of time
Three kinds of supply are as following
Market period supply
Short period supply
Long period supply
What is meant by market period supply
Market period supply refers to very short period
Eg the day to day market.
This supply is fixed. In case of durable goods, the market period supply can be increased or decreased onli out of existing stock available
What is meant by short period supply
Short period supply refers to such period of time which is enough to make adjustments by sellers in response to change in price. However, the time available is not very long. So, the adjustments are possible only within the existing productive capacity of firm.
Long period supply
Long period supply refers to such period of time during which all necessary changes can be brought in the industry to meet the permanent change of demand for commodities
Show supply curves of market period supply, short period supply and long period supply with the help of diagram.
Draw it loser
Law of supply
If all other things remains constant, the quantity supplied of a commodity increases as a result of increase in it’s price and vice versa
Market supply
How much quantity of a commodity is brought in the market for sale, on some day is called market supply
