Economics is the social science that describes the factors that determine the production, distribution and consumption of goods and services.
Supply is the amount of something that firms, consumers, laborers, providers of financial assets, or other economic agents are willing to provide to the marketplace.
Law of supply :
Law of supply is a fundamental principle of economic theory which states that when other things remaining constant, an increase in price results in an increase in quantity supplied or we can say there is a direct relationship between price and quantity.
Supply function is the mathematical expression of the relationship between supply and those factors that affect the willingness and ability of a supplier to offer goods for sale. It can be expressed as:
Where Sx=Supply function for X-commodity
Px=Price of X-commodity
Pf=Prices of factors of production
Pr=Price of related goods
G=Goal of the producer
Linear supply function:
A supply function is said to be linear when the slope of the supply curve remains constant throughout its length.The simplest form of a linear supply function is given by the equation,
In this equation , the alphabet ‘a’ denotes total supply at zero price and ‘b’ a constant ,denotes slope of the supply curve.
Non-linear supply function:
A supply function is said to be non-linear or curvilinear when the slope of the supply curve changes all along the supply curve.A non-linear supply curve function ,gemerally,takes the form of a power function as
A supply schedule is a table which shows how much one or more firms will be willing to supply at particular prices under the existing circumstances.It is of two types: ie; Individual supply schedule and Market supply schedule.
Individual supply schedule:
Individual supply schedule is defined as the table which shows quantities of a given commodity which an individual firm will supply at all possible prices at a given time.It is a graphical representation of individual supply schedule.
Individual supply curve:
An individual supply curve is a curve that shows different quantities of a commodity supplied by an individual consumer at different prices. It is the graphical representation of individual supply schedule.
Market supply schedule:
Market supply schedule is the table which shows the total quantity of a commodity all firms would supply at each market price per period of time. It is obtained by the summation of individual supply schedule.
Market supply curve:
Market supply curve is a curve that represents the aggregate supply of all the producers in the market at different prices of a particular commodity. It is horizontal summation of individual supply curves.
Extension in supply:
Other things remaining constant ,when the supply for a commodity goes up due to rise in price of the same commodity,it is referred to as an extension in supply.This results in upward movement along the same supply curve.
Contraction in supply:
When the supply for a commodity goes down due to fall in price of the same commodity, other things remaining constant it is referred to as a contraction in supply .This results in downward movement along the same supply curve.
Shift in supply curve:
When supply for a commodity increases or decreases ,the whole supply curve is drawn rightward or leftward ,this is referred to as shift in supply curve. Rightwaed shift in supply curve is called increase in whereas leftward shift is called decrease in supply.
Increase in supply:
When more quantities of a commodity are supplied due to the favourable change in other factors, ie. goal of the producer,price of the related goods,etc,it is referred to as increase insupply.This results in the supply curve for the commodity shifting rightwards.
Decrease in supply:
As the quantity supplied falls due to unfavourable change in other factors, i.e. goal of the producer,price of related goods,etc., it is referred to as decrease insupply.This results in the supply curve for the commodity shifting leftwards.
Causes of increase in supply:
The following are the main causes of increase in supply:
- Increase in price of the related goods.
- Decrease in price of factors of production.
- Decrease in tax rate.
- Favourable weather condition.
Causes of decrease in supply:
The following are the causes of decrease in supply:
- Decrease in price of the related goods.
- Increase in price of factors of production.
- Increase in tax rate.
- Unfavourable weather condition.
The point of interaction between the demand and supply curve is known as equilibrium point.Every market is in equilibrium when total quantity demanded and quantity supplied of a commodity are equal.