Ch:3 Supply

Question 1

Meaning of supply

Answer 1

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

Question 2

Differentiate between supply and stock

Answer 2

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.

Question 3

Differentiate between extension and contraction of supply

Answer 3

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.

Question 4

Different between rise and fall of supply

Answer 4

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.

Question 5

Define elasticity of supply

Answer 5

Elasticity of supply is the degree of responsiveness of supply of a commodity to a change in it’s price.

Question 6

Law of supply

Answer 6

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.

Question 7

Write formula of measurement of elasticity of supply

Answer 7

Following is the formula to measure the elasticity of supply
∆q/∆p × p/q

Question 8

What is the tendency of supply curve

Answer 8

Supply curve has the tendency to move from left to right upward
It means it’s slope is positive.

Question 9

Why is slope of supply curve positive

Answer 9

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.

Question 10

Write exceptions limitations of the law of supply

Answer 10

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

Question 11

Write the methods of measurement of elasticity of supply

Answer 11

The method of measurement of elasticity of supply are three

Percentage method
Proportional method
By mathematical formula

Question 12

What is meant by zero elasticity of supply

Answer 12

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

Question 13

What is meant by infinite elasticity of supply

Answer 13

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

Question 14

What is meant by elasticity of supply equal to unity

Answer 14

If the rate of change in supply and price is equal, elasticity of supply is said to be equal to unity

Question 15

Elasticity of supply greater than unity

Answer 15

If the ratio of change in supply is greater than that of price, elasticity of supply is said to be greater than unit.

Question 16

Elasticity of supply less than unity

Answer 16

If the ratio of change in supply is less than that of price, elasticity of supply is said to be less than unity

Question 17

Write 4 assumptions of law of supply

Answer 17

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

Question 18

Write five causes of change in supply

Answer 18

Change in price
Change in cost of production
Change in technique of production
Change in law and order situation
Change in weather

Question 19

Write four determinants of elasticity of supply

Answer 19

Nature of commodity
Cost of production
Nature of production process
Production capacity of industry

Question 20

What is meant by composite supply

Answer 20

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

Question 21

What is meant by joint supply

Answer 21

Joint supply means the supply of those goods which are produced jointly forexample cotton and cotton seed, wheat and chaff.

Question 22

Competing supply

Answer 22

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

Question 23

Write kinds of supply according to the period of time

Answer 23

Three kinds of supply are as following

Market period supply
Short period supply
Long period supply

Question 24

What is meant by market period supply

Answer 24

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

Question 25

What is meant by short period supply

Answer 25

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.

Question 26

Long period supply

Answer 26

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

Question 27

Show supply curves of market period supply, short period supply and long period supply with the help of diagram.

Answer 27

Draw it loser

Question 28

Law of supply

Answer 28

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

Question 29

Market supply

Answer 29

How much quantity of a commodity is brought in the market for sale, on some day is called market supply