LAW OF SUPPLY

Ø  LAW OF SUPPLY
MICRO ECONOMICS
MEANING OF LAW OF SUPPLY

• THE LAW OF SUPPLY EXPRESSES THE RELATION BETWEEN THE PRICE OF A COMMODITY AND ITS SUPPLY.
• OTHER THINGS REMAINING THE SAME,WHEN PRICE RISES,THE SUPPLY EXTENDS AND WHEN PRICE FALLS,SUPPLY CONTRACTS.
• DOOLEY,” THE LAW OF SUPPLY STATES THAT OTHER THINGS BEING EQUAL,THE HIGHER THE PRICE,THE GREATER THE QUANTITY SUPPLIED OR THE LOWER THE PRICE,THE SMALLER QUANTITY SUPPLIED
• Q_X =f(P_X)
• SUPPLY IS ALWAYS AT PRICE AND RELATES TO A PERIOD OF TIME.

• SUPPLY FUNCTION
• S=f((P_x , P_i , P_y ,K,N,T,E AND G---ETC)

1. PRICE OF THE GOODS(P_X )
2. PRICE OF THE FACTOR INPUTS(P_i )
3. PRICE OF THE OTHER GOODS(P_Y )
4. TECHNICAL KNOW HOW(K)
5. NUMBER OF SUPPLIER(N)
6. TIME PERIOD(T)
7. EXPECTATION OF THE PRODUCERS(E)
8. GOVERNMENT POLICY(G)

• MAIN POINT

1. DIRECT RELATIONSHIP: ACCORDING TO LAW OF SUPPLY THERE IS POSITIVE AND DIRECT RELATIONSHIP BETWEEN PRICE AND SUPPLY
2. IT DOES NOT EXPRESS THE PROPORTIONAL RELATIONSHIP BETWEEN PRICE AND QUANTITY SUPPLIED

• ASSUMPTIONS

1. PRICE OF SUBSTITUTE REMAIN CONSTANT
2. PRICE EXPECTATION ARE CONSTANT
3. METHOD OF PRODUCTION AND TECHNOLOGY DO NOT CHANGE
4. COST OF PRODUCTION REMAINS THE SAME
5. NO CALAMITIES
6. INDUSTRY ENJOYS PEACE,WITH NO LABOUR PROBLEMS
7. TAXATION POLICY NO CHANGE
8. GOVERNMENT INDUSTRIAL POLICY REMAINS THE SAME

• INDIVIDUAL SUPPLY SCHEDULE AND CURVE
•  A SUPPLY SCHEDULE IS A LIST SHOWING THE RELATIONSHIP BETWEEN PRICES AND SUPPLY OF A PARTICULAR COMMODITY IN PARTICULAR MARKET IN PARTICULAR DAY AND PARTICULAR TIME.
• INDIVIDUAL SUPPLY SCHEDULE : IS A SCHEDULE WHICH REPRESENT DIFFERENT QUANTITIES OF A COMMODITY WHICH AN INDIVIDUAL OR SELLER IS READY TO SUPPLY AT VARIOUS POSSIBE PRICES AT A GIVEN TIME.
• INDIVIDUAL SUPPLY SCHEDULE

·         INDIVIDUAL SUPPLY SCHEDULE AND CURVE

·          A SUPPLY SCHEDULE IS A LIST SHOWING THE RELATIONSHIP BETWEEN PRICES AND SUPPLY OF A PARTICULAR COMMODITY IN PARTICULAR MARKET IN PARTICULAR DAY AND PARTICULAR TIME.

·         INDIVIDUAL SUPPLY SCHEDULE : IS A SCHEDULE WHICH REPRESENT DIFFERENT QUANTITIES OF A COMMODITY WHICH AN INDIVIDUAL OR SELLER IS READY TO SUPPLY AT VARIOUS POSSIBLE PRICES AT A GIVEN TIME.

SUPPLY CURVE

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·         MARKET SUPPLY SCHEDULE AND CURVE

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·         MARKET SUPPLY CURVE

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·         EXCEPTION

1. PRICE EXPECTATION: IF THE SUPPLIER FEARS THAT THE PRICES ARE GOING TO FALL,HE MAY RESORT TO PANIC SELLING MEANS AT LOWER PRICES HE MAY SELL MORE. ON THE OTHER HAND IF HE EXPECTS PRICE RISE,HE MAY WITHHELD THE PRICE
2. AGRICULTURE PRODUCE:-NOT APPLICABLE TO AGRICULTURE PRODUCE WHICH IS DEPENDENT UPON NATURE
3. RARE PAINTINGS:- SUPPLY IS OR MORE LESS FIXED.IT WILL NOT VARY WITH THE PRICE
4. PERISHABLE GOODS SELLER WILL BE READY TO SELL MORE UNITS OF PERISHABLE COMMODITIES ALTHOUGH THEIR PRICE MAY FALLING
5. DOES NOT APPLY TO AUCTION AND CLEARANCE SALE
6. NOT APPLICABLE IN CASE OF SUPPLY CURVE OF LABOUR

·         EXCEPTIONAL SUPPLY CURVE SLOPES DOWNWARD FROM LEFT TO RIGHT,INDICATING MORE SUPPLY AT LOWER PRIES AND LESS SUPPLY AT HIGHER PRICES

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