23mcms 017180Supply Curve Session 6 2.pptx

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©Ramaiah University of Applied Sciences
Directorate of Transferable Skills and Leadership Development
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Course Title: Microeconomics
Course Leader:
Sunita Chakraborty
Sunita.tsld@msruas.ac.in

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Meaning of Supply
• Supply-refers to the quantity of a commodity which a firm is willing
and able to offer for sale at each possible price during a given period
of time.
• Two types of Supply
• Individual Supply
• Market supply
• Stock,supply,sale

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Determinants of Individual Supply
• Price of the given commodity
• Price of other goods
• Price of factors of Production
• State of Technology
• Government Policy
• Goals /objectives of firm
Determinants of Market Supply
• Number of firms in the market
• Future Expectation regarding price
• Means of Transport and Communication

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Supply Function

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Law of Supply
• The law of supply is the microeconomic law that states that, all other
factors being equal, as the price of a good or service increases, the
quantity of goods or services that suppliers offer will increase, and vice
versa. The law of supply says that as the price of an item goes up,
suppliers will attempt to maximize their profits by increasing the
quantity offered for sale
• The law of supply says that a higher price will induce producers to
supply a higher quantity to the market.
• Supply in a market can be depicted as an upward sloping supply
curve that shows how the quantity supplied will respond to various
prices over a period of time.
• Because businesses seek to increase revenue, when they expect to
receive a higher price, they will produce more

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Example of Supply
When the price of chairs is high, it is more profitable to sell chairs and
therefore produce more of it, and thus the quantity supplied of chairs
is higher. The carpentry may work longer hours and may buy new
machinery, and dedicate more time for making chairs rather than
other furniture. However, when the price of chairs is low, the
carpentry will produce less, since it is less profitable to sell chairs. At a
low price the carpentry may even stop making chairs altogether, and
their quantity supplied will fall to zero. This direct relationship
between price and quantity supplied is called the law of supply: When
the price of a good rises, the quantity supplied of the good also rises,
and when the price falls, the quantity supplied falls too, ceteris
paribus.

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Assumption of Law of Supply

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Individual Supply Schedule and Curve
• .
Market supply is the sum of the supplies of all sellers. Let us look at an
example of a market where there are only two ice-cream producers,
Farish and Saeed. The table below shows the supply schedules for the
two ice-cream producers. At any price, Farish’s supply schedule tells us
the quantity of ice cream that Farish supplies, and Saeed’s supply
schedule tells us the quantity of ice cream that Saeed supplies. The
market supply is the sum of the two individual supplies.
Price of ice-cream Farish Saeed Market
0.00 0 0 0
0.50 0 0 0
1.00 1 0 1
1.50 2 2 4
2.00 3 4 7
2.50 4 6 10
3.00 5 8 13

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The graph below shows the supply curves that correspond to the above supply
schedules.

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• We sum the individual supply curves horizontally to obtain the
market supply curve. That is, to find the total quantity supplied at
any price, we add the individual quantities, which are found on the
horizontal axis of the individual supply curves. The market supply
curve shows how the total quantity supplied varies as the price of
the good varies, holding constant all the other factors beyond price
that influence producers’ decisions about how much to sell.

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23mcms 017180Supply Curve Session 6 2.pptx

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