Supply analysis Flashcards
Total output
Total output can be defined as the sum total of the quantity of the commodity produced at a given period of time in the
economy.’’
Stock
Stock is the total quantity of commodity available for sale with a seller at a particular point of time.
It is the source of supply. It is potential supply.
By increasing production, stock can be increased.
Without stock, supply is not possible.
Normally, stock exceeds supply and it is fixed and inelastic.
In case of perishable goods such as milk, fish etc. stock may be equal to supply.
Supply
“Supply refers to the relation between market prices and the amount of goods that producers are willing to supply.- Paul Samuelson
It is related to time and price.
Supply is a flow concept
Individual supply schedule
Individual supply schedule refers to a tabular representation showing various quantities of a commodity that a producer is willing to sell at various prices, during a given period of time.
Determinants of supply
- Cost of production
- Other factors
- Price of a commodity
- Infrastructure
- Natural conditions
- Government policies
- Future expectations of price
Cost of production
If the factor price increases, the cost of production also increases, as a result, supply decreases
Other factors
It includes,
* nature of the market,
* relative prices of other goods,
* export and imports,
* industrial relations,
* availability of factors of production etc.
If all factors are favourable, supply of a commodity will be more and vice versa
Price of commodity
Price is an important factor influencing the supply of a commodity. More quantities are supplied at a higher price and less quantities are supplied at a lower price. Thus, there is a direct relationship between price and quantity supplied
Infrastructure
Infrastructure in the form of transport, communication, power, etc. influences the production process as well as supply. Shortage of these facilities decreases the supply and vice versa
Natural conditions
The supply of agricultural products depends on the natural conditions. For example, a good monsoon and favourable climatic condition will
produce a good harvest, so the supply of agricultural products will increase and unfavourable climatic conditions will lead to a decrease in supply
Government policies
Favourable Government policies may encourage supply and unfavourable government policies may discourage the supply. Government policies like taxation, subsidies, industrial policies, etc. may encourage or discourage production and supply, depending upon government policy measures
State of technology
Technological improvements reduce the cost of production which lead to an increase in production and supply
Future expectations about price
If the prices are expected to rise in the near future, the producer may withhold the stock. This will reduce the supply and vice versa
Intro to law of supply
It was introduced by Prof. Alfred Marshall in his book, ‘Principles of Economics’ which was published in 1890. The law explains the functional relationship between price and quantity supplied
Statement of the law
“Other things being constant, higher theprice of a commodity, more is the quantity supplied and lower the price of a commodity less is the quantity supplied”
In simple words, “other factors remaining constant, a rise in price results in a rise in the quantity supplied and vice-versa. Thus, there is a direct relationship between price and quantity supplied.
