Economics

• What is Supply Analysis
  

Supply is meant the quantities of a commodity or service which a seller is willing and able to offer for sale at various prices during a given period of time. The higher the price, the greater will be the quantity of a commodity that will be supplied by a producer, and vice versa.

• Factors influencing supply
  

• Price of the commodity

The higher the price of a commodity, the larger will be the quantity supplied, and vice versa.

• Price of other Commodities

A change in the price of another commodity also affects the supply of a commodity.

• Prices of Factors used in its Production

If the price of any one factor of production (i.e. Labor or capital) used in the production of a commodity increases, its cost of production and price will increase. As a result, its output will fall and the supply will be reduced.

• Goals of Producers

A producer who aims at maximizing his sales, he will produce and sell more.

• State of Technology

If new and improved methods of production are used, they tend to increase the supply of commodities.

• Law of supply 
  

The law of supply states that, other things remaining the same, the quantity supplied of a commodity is directly or positively related to its price. 

In other words, when there is a rise in the price of a commodity the quantity supplied of it in the market increases and when there is a fall in the price of a commodity, its quantity supplied decreases, other things remaining the same.

Thus, the supply curve of a commodity slopes upward from left to right.

• Supply curve
  

In the given figure, price and quantity supplied are measured along the Y-axis and the X-axis respectively. By plotting various combinations of price and quantity supplied we derived points A, B, C, D, E curve and joining these points we find an upward sloping i.e. SS1. The positive slope of the supply curve SS1 establishes the law of supply and shows the positive relationship in between price and quantity supplied.

• Elasticity of supply
  

Elasticity of supply is the degree of responsiveness of a change in supply to a change in price on the part of sellers .The coefficient of elasticity of supply is   Percentage Change in Quantity / Supplied Percentage Change in Price.

• Factors influencing Supply elasticity
  

• Nature of the commodity

If a commodity is perishable, its supply is inelastic. On the other hand, the supply of a durable commodity is elastic because its supply can be changed with the change in its price.

• Cost of Production

If the per unit cost of production increases at a faster rate than the rise in price, the supply will be inelastic. If the per unit cost of production of a commodity increases very slowly in response to a price rise, the supply will be elastic.

In the longer time period, the supply of a commodity will be more elastic. In the short time period, the supply of a commodity will be more inelastic.

• Producers’ Expectations

If producers expect a rise in the price of a commodity in the future, they will cut down the present supply. As a result, the supply will be inelastic and vice versa.