Maharashtra Board Class 12 Economics Chapter 4 Supply Analysis PDF Download

Supply Analysis

Introduction

The study of supply is as important as the study of demand. Supply is a fundamental economic concept that describes the total amount of a specific good or service that is available to a seller. The total amount of goods or services available for sale at any specified price is known as supply.

Concept Of Total Output, Stock And Supply

Total Output

Output is produced in the process of production. 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. Production leads to consumption. In the process of production inputs are converted into output or final goods.

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. On the other hand, for durable goods such as furniture, garments etc. stock can exceed the supply.

Supply

Supply is a relative term. It is always expressed in relation to price, time and quantity.

Meaning Of Supply

The word supply implies the various quantities of a commodity offered for sale by producers during a given period of time at a given price. It is related to time and price. Supply is a flow concept. It refers to the amount of a commodity that the firms produce and offer for sale in the market over a period of time, say a day, a week, a month or a year.

Definition Of Supply

According to Paul Samuelson, Supply refers to the relation between market prices and the amount of goods that producers are willing to supply.

Supply refers to the quantity of a commodity that a seller is willing and able to offer for sale at a given price, during a certain period of time. For example, a farmer's total output of rice is 4000 kgs. This is the total stock. If the price is ₹ 40 per kg, he offers 1000 kgs for sale. This is the actual supply.

Supply Schedule

A supply schedule is a tabular representation of the functional relationship between price and quantity supplied of a particular commodity.

1) 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.

Table 4.1 explains the functional relationship between price and quantity supplied of a commodity. Lower the price, lower the quantity of a commodity supplied and vice versa. At the lowest price of ₹ 10, supply is also lowest at 100 kgs. At the highest price of ₹ 50, quantity supplied is highest at 500 kgs.

Teacher's Note

Supply is like a shopkeeper's willingness to sell more mangoes when the price is high. When prices go up, sellers want to supply more goods to make more profit.

Exam Trick

Remember: Higher price = More supply. It is opposite to demand. In demand, higher price means lower quantity. But in supply, higher price means higher quantity supplied.

Points to Remember

Supply means the amount of goods a seller offers to sell at a particular price.
Stock is the total goods available. Supply is what the seller actually offers for sale.
Supply is related to three things: price, time, and quantity.
When price increases, suppliers want to supply more goods.
Supply schedule shows the relationship between price and quantity supplied in a table.

Individual Supply Curve

It is a graphical presentation of individual supply schedule.

In figure 4.2, quantity supplied is shown on the X axis and price on the Y axis. Supply curve SS slopes upwards from left to right, indicating a direct relationship between price and quantity supplied.

2) Market Supply Schedule: Market supply schedule refers to a tabular representation showing different quantities of commodity which all producers are prepared to sell at different prices at a given period of time.

In Table 4.2, market supply is obtained by adding the supply of sellers A, B and C at different prices. At a highest price of ₹ 50, market supply is the highest at 1800 kgs. At a lowest price of ₹ 10 market supply is lowest at 600 kgs.

Market Supply Curve

It is a graphical presentation of market supply schedule.

In figure 4.3, quantity supplied is shown on the X axis and price on the Y axis. Supply curve SS slopes upwards from left to right, indicating a direct relationship between price and market supply.

Teacher's Note

Market supply is the total supply from all sellers in the market. If there are 3 shopkeepers in a street selling apples, we add all their supplies together to get market supply.

Exam Trick

Remember: Individual supply = one seller. Market supply = all sellers added together. Always add the columns to get market supply.

Points to Remember

Individual supply is the supply from one producer or seller.
Market supply is the total supply from all producers in the market.
To find market supply, we add up the supplies of all individual sellers.
Both individual and market supply curves slope upward from left to right.
When price increases, both individual supply and market supply increase.

Determinants Of Supply

1) 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.

2) State Of Technology: Technological improvements reduce the cost of production which lead to an increase in production and supply.

3) Cost Of Production: If the factor price increases, the cost of production also increases, as a result, supply decreases.

4) Infrastructural Facility: 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.

5) Government Policy: 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.

6) 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.

7) 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.

8) 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.

Teacher's Note

Many things affect supply. In India, if there is good rain, farmers can supply more rice. But if there is a drought, supply becomes less. Also, if the government gives subsidies to farmers, they will supply more.

Exam Trick

Remember: 8 determinants of supply. Just think - Price, Technology, Cost, Infrastructure, Government, Nature, Expectations, and Others. These are the things that change supply.

Points to Remember

Price is the most important factor affecting supply.
Good technology reduces cost and increases supply.
High cost of production decreases supply.
Good roads and railways help increase supply.
Government taxes decrease supply, subsidies increase supply.