STOCK AND SUPPLY

Supply means the quantities that a seller is willing and able to sell at different prices. It is obvious that if the price goes up, he will offer more for sale. But if the price goes down, he will be reluctant to sell and will offer to sell less. Supply thus varies with price. Just as we cannot speak of demand without reference to price and time, similarly we cannot speak of supply without reference to price and time. Supply is always at a price. The supply of any good may then be defined “as a schedule of respective quantities of the good which people are ready to offer for sale at all possible prices”.

Supply schedule: Individual Supply Schedule

The supply schedule depicts the list of quantities—price relationships of a commodity in a market at a specific point of time by an individual seller. In other words, it reveals the mind of sellers in offering various quantities of a given commodity against corresponding prices.

Market supply

It is the sum of the quantity of a commodity that is brought into a market for sale by the sellers in a given market at a specific point in time. Assume that there are three sellers in a market viz., A, B, and C with individual supply schedules as shown below.

LAW OF SUPPLY

The law of supply indicates the functional relationship between the quantity supplied of a commodity and its unit price. The law signifies the positive relationship i.e., as the price of a commodity raises its supply extends and as the price falls its supply contracts, with other things remaining the same. Producers normally tend to increase the supplies in the wake of rising prices and reduce the same when the prices are on the lower side. Supply varies directly with the price.

Factors Causing Changes in Supply

The factors that are responsible for changes in supply are discussed below:

1. Changes in Technology: Technological innovations viz., new varieties of crops and their consequent increased yields per unit area, help to increase the supply of the commodity.

2. Reduction in Resource Prices: When the prices of input factors become cheaper than before, it encourages producers to use more of them in producing more output. Supply curve shifts towards the right side.

3. Reduction in the Relative Prices of Other Products: A reduction in relative prices of other related products come to the producers to increase the production of that particular commodity whose prices are relatively higher.

4. Market Infrastructure: When good communication and transport network increase, the supply of the commodity also increases.

5. Number of Producers: Changes that are found regarding the number of producers producing a given commodity influence the supplies. More the number of producers, the greater the supply, and vice versa.

6. Producers, Expectations about Future Prices: Price expectations influence the sales strategies of the producers positively.

ELASTICITY OF SUPPLY

The elasticity of supply of a commodity is the responsiveness or sensitiveness of supply to the changes in price. Supply is said to be elastic if a small change in price causes a considerable change in the quantity supplied. The supply is inelastic when a given change in price leads to little or less change or no change in the quantity supplied. In short, elasticity measures the adjustability of the supply of a commodity to price. The elasticity of supply (Price elasticity of supply) is expressed as the ratio of the percentage change in the number of goods supplied and the percentage change in the price of the good.

Degrees of Elasticity of Supply

There are five degrees of elasticity of supply. They are as follows:

Perfectly Elastic Supply

When the supply of commodity increases to infinite quantity or unlimited quantity, even though there is an invisible rise or minute rise in the price, the elasticity of supply is said to be infinity (Es = α).

Perfectly Inelastic Supply

It means that the quantity supplied is not responsive to change in prices. The elasticity of supply, in this case, is zero (Es = O).

Relatively Elastic Supply

Supply is referred to as relatively elastic, when the percentage change in quantity supplied is more than the corresponding percentage change in price. It is also called elastic supply. Elasticity of supply is more than one       (Es >1).

Relatively Inelastic Supply

Supply is said to be relatively inelastic when the percentage change in quantity supplied is less than the corresponding percentage change in price. In this case, the elasticity of supply is less than one (Es < 1).

Unitary Elastic Supply

When the percentage change in quantity supplied equals the percentage change in price, it is called unitary elastic supply. Here the elasticity of supply is equal to one (Es = 1).