The law of supply

Is a table that shows various quantities of goods and services offered for sale at their corresponding prices.

Is a table that shows various quantities of goods and services a single producer is willing and able to offer for sale in the market at different prices per period of time.

Is a table that shows different total quantities that producers are willing and able to offer for sale in the market at different prices per period of time.

Note: In order to get a market supply schedule, we add up individual supply schedules.

Is a geometrical representation of various quantities offered for sale by producers of a commodity and their corresponding prices.

Note: The supply curve can be an individual or market supply curve. Therefore, in order to get a market supply curve, we add up individual supply curves.

1. Price of the commodity

   The higher the price of the commodity, the higher the supply. The lower the price of the commodity, the lower the supply, other factors remaining constant.

   

2. Number of producers

   If there is a big number of producers of a particular commodity, supply will be high. When there is a less number of producers of a particular commodity, supply will be low.

3. Production technique (level of production)

   With the use of improved and better technology, supply will be big. However, with the use of inferior and low level of technology, supply will be low.

4. Government policy

   Provision of subsidies to producers results in more supply as it lowers the cost of production. On the other hand, imposition of taxes discourages producers and hence low supply.

5. Gestation period (production period)

   The shorter the gestation period, the higher the supply. The longer the gestation period, the lower the supply. In the short run, supply will be less since some factor inputs will be fixed. However, in the long run supply will be high as the firm will be able to vary all its factor inputs.

6. Price of the substitutes

   When the price of the substitute is high, supply of a good in question will be low because of low level of profitability. However, when the price of the substitute is low, supply of a good in question will be high.

   

7. Price of the complement (jointly supplied goods)

   When the price of the complement is high, supply of a good in question will be high and the opposite is true. For example, when the price of meat is high, supply of hides will also be high and vice versa.

   

1. Change in quantity supplied

   This means increase and decrease in quantity supplied due to change in the price of the commodity, other factors remaining constant. When the price increases, quantity supplied increases, and with the price decrease, quantity supplied decreases.

   

2. Change in supply (rise and fall in supply)

   Also referred to as the shift of the supply curve. This means rise or fall in supply due to all factors affecting supply apart from the price. When the supply curve shifts to the right, it means a rise in supply, and when it shifts to the left, it means decrease or fall in supply.

   

1. Cost of production

   When cost of production of any commodity rises, supply falls, and vice versa.

2. Climate situation

   If climatic situation remains favorable, agricultural production will increase, and as a result of this, supply will rise, and vice versa.

3. Improvement in the method of production

   When new and less expensive methods of production are invented, supply will increase or rise, and vice versa.

4. Development of means of transport and communication

   If means of transport and communication are adequate and developed, it will be possible to move commodities from one place to another. In this case, supply will rise, and vice versa.

5. Peace and security

   With peace and security, supply rises because production is encouraged, and vice versa.

6. Policy of the government

   When restrictions are levied by the government on the movement of goods, supply will fall, and when such restrictions are removed, supply will rise.

7. Rates of taxes

   When taxes are levied at a higher rate, supply falls, and vice versa.

Is that supply curve which disobeys the law of supply. It has a negative slope. It implies that the higher the price of the commodity, the lower the quantity supplied of it, and vice versa.

The cases of abnormal supply curve are not common. In very rare cases only a supply curve will be of the abnormal shape. There is one good example of abnormal supply curve, i.e., the bending supply curve of labor. This shows that beyond a specific wage level, any rise in wages will result in decrease in working hours. The shape of the supply curve of labor is as under.

When wages rise beyond OW, then working hours decrease.

1. Joint supply

   Some goods are produced together. The supply of those goods which have common process of production is known as joint supply. The supply of such goods is increased or decreased simultaneously.

   For example:

   • Wood and mutton are produced jointly.
   • From crude oil, different types of petrol production are obtained, such as diesel, engine oil, super, etc.

2. Composite supply

   The goods which are substitutes of one another, their total quantity is called composite supply.

   For example:

   • Supply of mutton, beef, and chicken.
   • Supply of tea and coffee.
   • Supply of cold drinks like Coca Cola and Pepsi.

3. Competitive supply

   There are some alternative uses of land, labor, and capital. If these factors are used for the production of one commodity, then the supply of other commodities is affected.

   For example, if more land is used to produce wheat, then production of maize will decrease. The supply of these goods is competitive supply.