Supply Flashcards
What is Supply?
Supply refers to the quantity of a commodity a producer is able and willing to offer for sale at a given price, during a given period of time.
What is the law of supply?
The law of supply states that the quantity supplied of a commodity rises with the rise in its price and the quantity supplied falls when the price of commodity falls, ceteris paribus.
What are the factors affecting supply/deteriminants of supply/supply function?
1. Price of Commodity - There is an direct relationship between the price of the commodity and its quantity supplied. It imples that with the rise in price of the commodity its quantity supplied increases, ceteris paribus, and with the fall in price of commodity its quantity supplied drecreases, ceteris paribus.
2. Price of Factor Inputs - A change in the price of factors of production, such as rent on land, interest on capital, wages to labour etc. also affects the supply of a commodity. If price of factor inputs rises, ceteris paribus, cost of production tends to increase leading to a fall in the level of output, resulting in decrease in supply. On the contrary, if price of factor inputs falls, ceteris paribus, cost of production tends to decrease leading to a rise in the level of output, resulting in increase in supply.
3. Price of Other Goods - A change in the price of other goods also affects the supply of a commodity. If price of other goods that the firm is producing rises, ceteris paribus, the firm would increase quantity supplied of the other good and as a result the supply of the commodity in question decreases. On the other hand, if price of other goods that the firm is producing falls, ceteris paribus, the firm would decrease quantity supplied of other good, and as a result the supply of the commodity in question increases.
4. Technique of Production - The supply for a commodity also depends on the technique of production. If the technology that the firm uses is modern, advanced or sophisticated the cost of production will decrease leading to a rise in level of output and as a result supply will increase. On the other hand, if the technology that the firm uses is obsolete, outdated or unsophisticated the cost of production will increase leading to a fall in level of output and as a result supply will decrease.
5. Government Policy - Taxation and subsidy policy of the governent also affects the supply of a commodity. If the govenment increases rate of taxation, the cost of production will increase leading to a fall in level of output and as a result supply will decrease. On the other hand, if the government grants subsidies, the cost of production will decrease leading to a rise in level of output and as a result supply will increase.
What is movement along the same supply curve? Why does it take place?
Movement along the same supply curve, or change in quantity supplied refers to a situation in which the quantity supplied of a commodity changes, due to a change in price, ceteris paribus.
It is in the form of:-
1. Expansion/Extension of Supply - (Upward, Quantity Suplied Rises due to Rise in Price)
2. Contraction of Supply - (Downward, Quantity Supplied Falls due to Fall in Price)
What is Expansion/Extension of Supply?
When the quantity supplied of a commodity rises due to a rise in its price, it is known as expansion of supply.
Hence, the upward movementalong thesame supplycurveisknown as expansion of supply.
What is Contraction of Supply?
When the quantity supplied of a commodity falls due to a fall in its price, it is known as expansion of supply.
Hence, the downward movement along the same supply curve is known as contraction of supply.
What is shift in the supply curve? Why does it take place?
Shift in supply curve, or change in supply,refers to a situation in which thesupplyfora commoditychanges, due to achangeinfactors other than price,priceof commodity assumed to be heldconstant.
It is in the form of:-
1. Increase in supply - (Rightward Shift, supply Rises)
2. Decrease in supply - (Leftward Shift, supply Falls)
What is increase in supply?
When the supply for a commodity increases due to a change in factors other than price of the commodity, it is known as increase in supply.
The supply may increase due to:-
- Fall in price of Factor Inputs.
- Fall in price of Other goods.
- Improvement in production technology
- Fall in rate of taxation.
- Increase in subsidies.
Hence, Increase in supply is shown by a rightward shift in supply curve.
What is decrease in supply?
When the supply for a commodity decreases due to a change in factors other than price of the commodity, it is known as decrease in supply.
The supply may decrease due to:-
- Rise in price of Factor Inputs.
- Rise in price of Other goods.
- Decline in production technology
- Rise in rate of taxation.
- Decrease in subsidies.
Hence, Decrease in supply is shown by a leftward shift in supply curve.
What is a supply schedule? What are its forms?
Supply Schedule refers to the tabular presentation showing different quantities supplied at different prices, during a given period of time.
It is in the form of:-
1. Individual Supply Schedule - Refers to tabular presentation showing different quantities supplied at different prices, during a given period of time, by a firm.
2. Market Supply Schedule - Refers to tabular presentation showing different quantities supplied at different prices, during a given period of time, by all the firms.
What is a supply curve? What are its forms?
Supply Curve refers to the graphical presentation showing different quantities supplied at different prices, during a given period of time.
It is in the form of:-
1. Individual Supply Curve - Refers to graphical presentation showing different quantities supplied at different prices, during a given period of time, by a firm.
2. Market Supply Curve - Refers to graphical presentation showing different quantities supplied at different prices, during a given period of time, by all the firms.
What is elasticity of supply?
Elasticity of Supply (E<span>s</span>) refers to %age change in quantity supplied of a commodity, due to %age change in its price.
Es = % change in quantity supplied / % change in price
What is the method to calculate Elasticity of Demand?
Es = %# in quantity/ %# in price
Es = [(Q1 - Q)/Q] * 100 / [(P1 - P)/P] * 100
where Q is Initial Quantity, P is Initial Price, Q1 is new quantity, P1 is new price
Es = [#Q/Q] / [#P/P] = (#Q/#P) * (P/Q)
What are the degrees of Elasticity of Supply (Es)?
1. Perfectly Inelastic Supply - (Es = 0, Steepest Slope)
2. Perfectly Elastic Supply - (Es = ∞(infinity), Flat Slope)
3. Unitary Elastic Supply - (Es = 1, 45º Slope)
4. Elastic Supply - (Es > 1, Less steep Slope)
5. Inelastic Supply - (Es < 1, Steeper Slope)
What is Perfectly Inelastic Supply?
Refers to a situation in which the %age change in price causes no change in quantity supplied.
(Es = 0, Steepest Slope)
What is Perfectly Elastic Supply?
Refers to a situation in which there is %age change quantity supplied without any corresponding %age change in price.
(Es = ∞(infinity), Flat Slope)
What is Unitary Elastic Supply?
Refers to a situation in which the %age change in price causes an equal %age change in quantity supplied.
(Es = 1, 45º Slope)
What is Elastic Supply?
Refers to a situation in which the %age change in price causes greater %age change in quantity supplied.
(Es > 1, Less steep Slope)
What is Inelastic Supply?
Refers to a situation in which the %age change in price causes lesser %age change in quantity supplied.
(Es < 1, Steeper Slope)
