Supply (Producers' Behavior)

THE WINNERS’ ACADEMY ECONOMICS PRODUCER’S BEHAVIOUR
6. PRODUCER’S BEHAVIOUR
Marks : 06 Marks with option : 10
Points to be Learn :
 Meaning and Definition of Output, Stock, Supply
 Concept of Individual Supply and Market Supply
 Law of Supply
 Variations in Supply
 Changes in Supply
 Price Elasticity of Supply
 Average Cost / Marginal Cost / Total Cost
 Average Revenue / Marginal Revenue / Total Revenue
Q.1 Explain the concept of output, stock & supply?

Answer : Output means quantity produced therefore total output means total quantity
produced in a given period of time in an economy with the help of all factors.
Stock means “Total quantity available with producer for sale at given time, at a given
price.” Stock shows total number of units available for sale at a given time at a given price.
Stock is a reservoir. It depends upon capacity of a producer to produce. Stock can exceed
supply. Stock is the source of supply without stock supply is not possible. It is potential
supply.
Supply means “Actual quantity offered for sale by a producer at a given time at a
given price.” Supply depends upon willingness to sell and capacity of production. Supply is a
flow. Supply can be equal to stock but never exceed the stock. Supply highlights four
essential elements. i.e. quantity of commodity, price, period of time and willingness to sell.
In short, supply and stock are having different meaning from each other.
Supply means “Actually quantity offered for sale by a producer at a given time
at a given price.” Supply of a commodity cannot be shown absolutely. It is always shown
with the price factor and time factor.
Concepts of Total Output, Stock and Supply :
Total output :
1. Output needs inputs.
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2. Land, labour and capital are the well-known common inputs for the production of
goods and services.
3. Therefore, total output is total amount of commodities produced during a period of
time with the help of all factors of production employed by the firm.
4. The basic function of a producer is to producer is to produce goods and services with
the help of factors of production.
Stock :
1. Stock is the quantity of commodity available for sale.
2. Without stock there cannot be any supply (i.e. stock is greater than supply)
3. Stock can be increased with increase in production.
4. Sometimes stock may be equal to supply (e.g.in case of perishable goods)
Supply :
1. Supply is always from the stock.
2. Supply refers to quantity of a commodity that a seller is willing and able to offer for
sale at a particular price during a certain period of Time.
3. Supply is a relative term; it is always related to price, time and Quantity.
4. Supply is a producer’s phenomenon.
Q.2 What is individual supply?

Answer : Individual supply means “Actual quantity offered for sale by a producer at
a given time at a given price.” It is the quantity of goods that an individual seller is able &
willing to offer the sale at different prices.
It is a part of market supply. It is always less than market supply. It is a narrower
concept. It is micro concept. Individual supply depends upon.....
1) Capacity of production.
2) Willingness to sell.
3) Price of a commodity etc.
At lower price less quantity is offered for sale. It is because there are less chances of
earning profit at lower price. Continuous fall in price results into losses to producers.
Therefore less quantity is offered to avoid losses. At higher price there are more chances of
earning profit. To avail the opportunity of earning profits producer supplies more. In short
price & supply are directly related with each other.
ECONOMICS Page 118 SYJC | COMMERCE

This can be explained by table and diagram. Individual supply schedule refers to
table which shows various quantities offered for sale by single seller at different prices
during a given period of time.
Price Supply
(In Rs.) (In Units)
10 10
20 20
30 30
40 40
50 50
Q.3 What is Market supply?

Answer : Market Supply means , “Actual quantity offered for sale by all producers at
a given time at a given price.” It is the aggregate quantity of goods that the entire sellers
in market are able and willing to offer for sale at different price.
Market supply is sum of individual supply. It is always more than individual supply.
It is a broader concept. It is macro concept. Market supply depends upon.......
1) Price of a commodity.
2) Cost of production.
3) Aim of producers.
4) Government policies.
5) Climatic Conditions etc.
At lower price less quantity is offered for sale. It is because there are less chances of
earning profit at lower price. Continuous fall in price results into loss to producers.
Therefore less quantity is offered to avoid losses. At higher price there are more chances of
earning profit. To avail the opportunity of earning profit producers supplies more. In short
price and supply are directly related with each other.
This can be explained with the help of
table and diagram. Market supply schedule
shows various quantities offered for sale by all
producers during a given period of time.
Price Supply Market supply

In Rs. A B C (In Units)
10 20 40 60 120
20 40 60 80 180
30 60 80 100 240
40 80 100 120 300
50 100 120 140 360

Q.4 “Market supply depends upon many factors.” OR

Answer : Yes , I agree with this statement.
What are the factors determining affecting market supply? OR
Market supply depends upon price only.
Answer : No , I do not agree with this statement.
Market supply means “Actual quantity offered for sale by producers at a given
time at a given price.” Market supply is sum of individual supply. It depends upon many
factors. These factors are as under.
1. Price of a commodity :
Price is one of the most important determinants of supply. At higher price, more
quantity is offered for sale to earn more amount of profit. At lower price less quantity is
offered for sale to avoid losses. So price & supply are directly related with each other.
2. Cost of production :
Cost of production means cost incurred to produce a commodity. It affects capacity of
production. At higher cost of production less quantity is offered for sale due to less
capacity of production & vice versa. Cost of production and supply are inversely related
with each other.
3. Technology :
Technology means methods of production. Use of modern technology increases
production capacity & supply of a commodity.
4. Goal of a producer :
Aim of a producer behind selling production decides market supply. Those producers
who are newly entered in market make more supply even at lower price. It is because
their aim is to introduce their product, attract customers and create goodwill.
5. Government policies :
Government is an important institution in the country which controls all producers
by way of different taxes & policies. It includes income tax, sale tax, service tax, excise
duty etc. If government policies are favourable producers are encouraged to produce
more and supply more. Unfavourable government Policies discourage producers and
supply gets reduced at the market.
6. Climatic conditions :
It is an important factor which decides supply of agricultural goods. If natural
conditions are good then agricultural production will be more & supply will be more.
Natural calamities such as flood, earthquakes, cyclone etc decreases production and
market supply.

7. Export - Import :
Export means selling goods to foreign countries and Import means purchasing goods
from foreign countries. Export decreases supply in home country and Import Increases
supply.
8. Self-consumption :
It is an important factor in agricultural sector. Farmers keep aside certain part of
production for self-consumption and remaining part they offer for sale. How much part
they keep aside decides their contribution to market supply. If larger part is kept aside
for self-consumption the lesser part will be available for market supply.
9. Prices of factors of production :
If the factors of production are costly, the producers will have less attraction to
produce more & supply will be less.
10. Nature of Market :
If there is perfect competition, supply would be high. In monopoly market, producer may
create artificial scarcity to raise the price. It will reduce supply.
11. Availability of time :
Availability of time with producers to make production decides market supply.
During short period supply is inelastic. During long period producer can increase supply
up to any level. So supply is elastic.
12. Expectations about future prices :
Any expectations about future prices affect current supply of producers. At rising
prices if producer expected that there will be further rise in future price he supplies less
today and vice versa.
13. Infrastructure Facility :
Infrastructure in the form of transport, communication, power etc., influences the
production process as well as supply. Shortage of these facilities decreases the supply.
All above are different factors influencing market supply of a commodity.
Q.5 Explain Law of supply.

Answer : Law of supply is introduced by Prof. Alfred Marshall. In his words law is as
under-
“Other things being equal supply of a commodity varies directly with its price.”

Explanation of Law :
Law of supply states the relationship in between price & supply of a commodity. At
higher price there is more chance to earn profit. To avail the opportunity of earning profit
producers supplies more. At lower prices there are less chances of earning profit and more
chances of incurring losses. Therefore, to avoid losses producers supply less.
In short price and supply are directly related with each other.
Relationship can be established with the help
of table and diagram.
Price Supply
(In Rs.) (In Units)
10 10,000
20 20,000
30 30,000
40 40,000
50 50,000
Q.6 What are the assumptions / conditions of law of supply?

Answer : Law of supply states the direct relationship in between price and supply of a
commodity. Law is as under. It describes seller’s supply behaviour under given conditions.
“Others things being equal, supply of a commodity varies directly with its price.”
Marshall’s Law of supply begin with the words ‘Other things being equal.’ These
others things refer to the various factors other than price which affect supply. If there is a
change in other factors, supply will change without change in price. Hence Marshall
assumes that other factors remain unchanged. If assumptions remain constant, Law will be
valid. Following are the assumptions of law.
1) No change in Cost of Production :

Cost of production decides capacity of production. At higher cost of production
less quantity is produced and offered for sale & vice versa. Any change in cost of production
will bring change in supply of a commodity. So it should be constant while proving the law.
2) No change in Technology :
Technology means methods of production. Use of modern technology
increases production & supply of a commodity & vice versa. So it should be constant while
proving the law.

3) No change in government policies :

Government policies & taxes such as sales tax, import-export duty, excise duty
etc affect producers. Favourable government policies motivate producers to produce more
& supply more and vice versa. Therefore government policies should be unchanged while
proving the law.
4) No change in climatic conditions :
It is an important factor in agricultural sector. Natural calamities reduce
agricultural production & supply of a commodity. Favourable climatic condition increases
market supply. So it should be constant while proving the law.
5) No change in number of producers :
While proving the law, number of producers should not be increased or
decreased. If number of producers increased then market supply will also increase & vice
versa.
6) No expectations about future prices :
While proving the law, producers should not expect about future prices. Any
expectations about future prices affect current supply of the producers. At rising prices if
producer expected, further rise in future rise in future price then he supplies less today.
7) No change in scale of production :
Scale of production means either large scale or small scale production. While
proving law, producers producing on large scale should not shift their production level to
small scale & vice versa.
All above are different assumptions of law of supply.
Q.7 What are the exceptions to law of supply? OR

“There are no exceptions to law of supply.” – Do you agree.
No, I do not agree with this statement.
Law of supply states direct relationship of price & supply. There are some things to
which law is not applicable. These things are called as ‘Exceptions to Law ’. In case of
exceptional things, supply curve slopes downwards from left to right. Following are the
exceptions to the law.
1) Supply of Labour :
Law of supply is not applicable to supply of labour. Supply of labour means
number of working hours & Price of labour means wages rate paid to labourers.

When wage rate raises workers work more number of hours at initial stage. It is because to
earn more amount of income. When wage rate rises beyond a limit then workers work less
number of hours. It is because of two reasons.
1) Due to physical and mental limitations workers cannot work more number of hours.
2) By reducing number of working hours there is no any income loss to workers.
Therefore workers utilise free time to maximise their family welfare.
Due to this supply curve of labour moves upward at initial stage and later on it bends on
backward side. So, supply curve of labour is backward bending.
Price Supply of labour

(Wages rate) (Working hours)
(In Rs.) (In hours)
60 6
70 7
80 8
90 9
100 8.30
110 8
120 7.30
2) Perishable goods :
Perishable goods are having very short life. If they stored for long period, they lose
their utility. Seller is forced to dispose-off perishable goods like vegetables, fruits, eggs, etc.
Even at a low price, so producers more at fewer prices to avoid losses.
3) Handicraft goods :
Handicraft goods means good produced with human efforts. Some amount of time is
consumed by artisans for producing them. The supply of handicraft goods cannot be
increased suddenly though their price rises. Therefore, the handicraft products like
sculptures etc. Are exceptions to the law of supply.
4) Agricultural products :
Agricultural products require sufficient period of time for growth. Thus, their supply
cannot be increased overnight though their price rises. Agriculture goods are produced
once or twice in a year. Their production depends on climatic conditions. Due to unforeseen
changes in weather, If the agricultural production is low, then their supply cannot be
increased.

5) Cost of storing :
Produced goods should be stored at warehouse till the sale. The cost of storing
increases the cost and reduces the profit. Therefore, the sellers sell more even at lower
prices.
6) Need for cash :
If the seller needs the cash urgently then he is forced to sell more even at lower
prices.
7) Savings :
At the initial stage, saving increase with an increase in the rate of interest. But at a
later stage saving diminishes, as consumers’ consumption of luxury products rises. Thus,
savings is an exception to the law of supply.
8) Self consumption :
Law is not applicable to such producers who keep part of production for self-
consumption. It is an exception in agricultural sector. Those producers who keep large part
of production for self-consumption make less supply even at higher price.
9) Expectations about future prices :
Law is not applicable to such producers who expect about future prices. At rising
prices if producer expected further rise in future price then producer supplies less today &
vice versa.
10) Rare Articles :
Articles like precious stones, coins, painting stamps etc are rate. Their availability is
limited. Even if the prices of these articles increase their supply cannot be increased.
All above are different exceptions to law of supply.
Q.8 What do you mean by variations in supply?

Answer : Supply means “Actual quantity offered for sale by producers at a given
price at a given time.” Supply depends upon many factors such as price of a commodity,
cost of production, technology, government policies, climatic conditions etc. In short,
supply changes due to price factor and other factors.
When supply changes due to change in price of a commodity then it is called
variations in supply. At this time other factors affecting supply such as cost of production,
government policies, climatic conditions etc. are constant. There is movement of supply
curve either or left side.

Variations in supply are of two types.

1) Expansion of supply.
2) Contraction of supply.
1) Expansion of supply :
When more quantity is offered for sale due
to rise in price of a commodity then it is called
as ‘Expansion of supply’. At this time other
factors affecting supply such as cost of production, technology and govt. policies and
climatic conditions etc. are constant. There is a movement of supply curve to the right
side.
2) Contraction of supply :
When less quantity is offered for sale
due to fall in price then it is called as
‘contraction of supply’. At this time other
factors affecting supply such as cost of
production, technology, government policies,
climatic conditions etc. are constant. There is a movement of supply curve to the left
side.
Q.9 What do you mean by changes in supply?

Answer : Supply means, “Actual quantity offered for sale by producers at a given time at a
given price.” Supply depends upon many factors such as price of a commodity, cost of
production, technology, govt. policies, climatic conditions etc. In short, supply changes due
to price factor and other factors.
When supply changes due to change in other factors such as cost of production,
technology, and govt. Policies, climatic conditions etc. Then it is called as changes in supply.
Here, price factor is constant. There is a shifting of
supply curve either to right or left side.
Changes in supply are of two types.
1) Increase in supply :
When more quantity is offered for sale due
to favourable changes in other factors such as fall

in cost of production, use of modern technology, favourable govt. Policies, favourable

climatic conditions etc then it is called as ‘Increase in supply’. At this time price factor is
constant. There is a shifting of supply curve to the
right side.
2) Decrease in supply :
When less quantity is offered for sale due to
unfavourable changes in other factors such as rise
in cost of production, use of old technology,
unfavourable government policies, unfavourable
climatic conditions etc. Then it is called as ‘decrease in supply’. At this time price factor is
constant. There is a shifting of supply curve to the left side.
Q.10 What is Price Elasticity of supply? What are its types?

Answer : Supply means actual quantity offered for sale by a producer at a given price at
a given time. Supply depends upon many factors such as price of a commodity, cost of
production, Technology, Government policies etc. Out of these factors, price of a commodity
is most influential factor which affects supply. Any change in price brings change in supply.
When price rises, supply expands & vice versa. In other words supply gives response to
change in price. Such response given by supply of a commodity to change in price is called
as Price Elasticity of supply.
In Economics, Price Elasticity of supply refers to......
“Proportionate change in Quantity offered for sale to proportionate change in price of
a commodity”.
There are 5 types of Price Elasticity of supply.
1) Unitary Elastic supply :
When a proportionate change in price brings equal proportionate change in supply of
a commodity then it is called as Unitary Elastic supply. Here response of supply to change in
price is same or equal. Elasticity of supply is equal to one. Unitary Elastic supply curve is
Normal supply curve is Normal supply curve.
2) Perfectly Elastic supply :
When a proportionate change in price bring equal proportionate change in price
bring unlimited proportionate change in supply of a commodity then it is called as perfectly

elastic supply. Here response of supply to change in price is unlimited & Not measurable.
Elasticity of supply is infinite. Perfectly Elastic supply curve is Horizontal line & parallel to
‘OX’ axis.
3) Perfectly Inelastic supply :
When a proportionate change in price brings no proportionate in supply of a
commodity is called as Perfectly Inelastic supply. Here response of supply is Nil. Elasticity
of supply is zero. Perfectly Inelastic supply curve is vertical line & parallel to ‘OY’ axis.
4) Relatively Elastic supply :
When a proportionate change in price brings more proportionate change in supply
of a commodity then it is called as Relatively Elastic supply. Here response of supply is
more than change in price elasticity of supply is greater than one. Relatively Elastic supply
curve is more flatter.
5) Relatively Inelastic supply :
When a proportionate change in price brings less proportionate change in supply of a
commodity then it is called as Relatively Inelastic supply. Here response of supply is less
than changes in price; Elasticity of supply is lesser than one. Relatively Inelastic supply
curve is steeper.
All above are different types of Price Elasticity of supply.
Q.11 What are the methods of measuring Price Elasticity of supply ?

Answer : Price Elasticity of supply refers to……
“Proportionate change in supply to proportionate change in price if a commodity”.
Following are different methods of measurement of Price Elasticity of supply.
1) Percentage Method :
It is also called as “Ratio method, it is based on definition of Elasticity of supply of a
commodity. Price Elasticity of supply refers to ......
“Proportionate change in supply of a commodity to proportionate change in price of a
commodity”.
2) Geometric Method :
It is also called as ‘Point’ method. Under this method Elasticity is measured with the
help of supply curve. Elasticity is measured at a particular point on supply curve.

While measuring Elasticity first supply

curve is drawn. Then it is extended to
meet ‘OX’ axis. Then a perpendicular is
drawn from the point on ‘OX’ axis.
Then distance is measured from point O to Q & from N to Q. Then a formula is used
measure Elasticity.
If answer by this formula is.............
a. One then it is Unitary Elastic supply.
b. Lesser than one then it is Inelastic supply.
c. Greater than one then it is Elastic supply.
Q.12 What are the determinants of Price Elasticity of supply?

Answer : Price Elasticity of supply refers to ...........
“Proportionate change in supply of a commodity to a proportionate
change in price of a commodity”.
Elasticity of supply is influenced by many factors which are as under :
1. Nature of a commodity :
By nature of a commodity we mean perishable goods & Durable goods. Perishable
goods are having inelastic supply whereas supply of durable Goods is Elastic.
2. Time period :
How much time is available with producer to make production decides Supply of a
commodity. During short period supply is inelastic & During A long period supply is Elastic.
3. Technology :
Technology means methods of production. Use of advanced technology, increases
production so, supply is Elastic. Supply remains Inelastic with Use of old & out-dated
Technology.
4. Cost of production :
Cost of production means cost incurred to produce a commodity. It decide Capacity of
production. If cost of production is more, supply is Inelastic & vice versa.
5. Natural factors / Climatic conditions :
It is an important factor which decides production & supply of Agricultural Goods. The
commodities whose production depends upon natural factors, the supply will be Inelastic.

6. Availability of factors of production :

If raw material and factors of production are easily available then supply Will be
elastic. If they are in scarce then supply will be inelastic.
7. Scale of production :
If goods are produced on a small scale, their supply would be inelastic. However, if
goods are produced on a large scale, their supply would be elastic.
8. Mobility of factors :
Mobility means transferability. If factors are having high degree of geographical &
occupational mobility then supply will be more elastic.
All above are different factors which affect price elasticity of supply.
Q.13 Explain the concept of Total cost, Average cost & Marginal cost?
Answer : When entrepreneur undertake any production activity, he has to use various
input such as raw material, Labour, capital etc. He has to make payment for such factors
used in production. The expenditure incurred on their inputs (factors) is known as “Cost of
production” depends upon level of production. At higher level of production, cost of
production is high & vice versa.
There are two types of cost i.e. Fixed cost & Variable cost. Fixed cost means costs
which remain same up to certain level of production; variable cost means cost which
changes according to different levels of production. There are 3 concepts relating to cost.
1. Total cost: It is the total expenditure incurred by a firm on the factors of
production required for production. Total cost is the sum of total fixed cost & Total variable
cost.
Total cost = Total Fixed cost + Total variable cost
TC = TFC + TVC
2. Average cost: Average cost refers to the cost per unit. It is the cost incurred to
produce one unit of a commodity.
Average cost = Total Cost / No. of Unit produced
AC = TC/No. of Units produced
For eg. : If the total cost of producing 100 boxes is Rs.3000/- then average cost will be
AC = 3000/100 = Rs.30/-

3. Marginal cost: Marginal cost refers to the additional cost incurred to produce
additional unit of a commodity. It is an addition made to the total cost.
Marginal cost = Total cost on all units – (Total cost on all units -1 unit)
MC = TCn – TC(n-1)
For e.g. If the total cost of producing 5 boxes is Rs.200 & total cost of producing 6 boxes is
Rs.250 then
MCn =
Q.14 Explain the concept of Total Revenue, Average Revenue and Marginal
revenue?
Answer : Revenue refers to the amount received by a firm from the sale of goods.
Revenue = Quantity price
It is the amount received by selling goods at different prices at market. There are 3 concepts
relating to Revenue.
1) Total Revenue :
Total revenue is the total receipts. It is the total income received by firm by selling all units
of a commodity.
Total Revenue = Total Quantity Price
TR = TQ Price
2) Average Revenue :
Average revenue refers to revenue received by selling per unit of output.
Average Revenue =
For e.g. If the total Revenue from sale of 100 Boxes is Rs.8000 then average revenue shall be
AR =
3) Marginal Revenue :
Marginal revenue refers to the net addition made to the total revenue. It is an addition
made by selling additional unit of a commodity.
Marginal Revenue = Total Revenue
On all units sold
MR = TRn – TR(n-1)
One more way to calculate marginal revenue is …….

For e.g. If the total revenue from selling of 5 boxes is Rs.500 and from sale of 6 boxes is
Rs.600 then MR =
All above are different concept relating to revenue.
DEFINE THE TERM
1. Total Cost :
It is the total expenditure incurred by a firm on the factors of production
required for production. Total cost is the sum of total cost & Total variable cost.
Total cost = Total Fixed cost + Total variable cost
TC = TFC + TVC
2. Output :
Output is produced through the process of production. Thus, Total Output can
be defined as “The sum total of the commodity produced at a given period of time in the
economy.” Therefore, Total output is total amount of commodities produced during a
period of time with help of all factors of production employed by the firm.
3. Marginal Cost :
Marginal cost refers to the additional cost incurred to produce additional unit of
a commodity. It is an addition made to the total cost.
Marginal cost = Total cost on all units – (Total cost on all units -1st unit)
MC = TCn - TC(n-1)
4. Stock :
Stock refers to the total quantity of a commodity available with producer for
sale at a particular period of time. Stock is the source of supply. It is outcome of
production. If production increases stock will increase & vice versa. Stock is a potential
supply. It shows capacity of a producer to supply at market. Stock is reservoir from
which there is a continuous flow of supply. Stock can be more than or equal to supply
but stock cannot be less than supply. Stock depends upon ability of a producer to
produce.
5. Elasticity of supply :
Supply means actual quantity offered for sale by a producer at a given price at a
given time. Supply depends upon many factors such as price of a commodity, cost of

production, technology, government policies etc. Out of these factors, price of a

commodity is most influential factor which affects supply.
Any change in price brings change in supply. When price rises, supply expand &
vice versa. In other words supply gives response to change in price. Such response given
by supply of a commodity to change in price is called as Price Elasticity of supply.
In Economics Price Elasticity of supply refers to ......
“Proportionate change in Quantity offered for sale to proportionate change in
price of a commodity”.
6. Average Revenue :
Average revenue refers to revenue per unit of the quantity sold. It is obtained
by dividing the total revenue by the number of units sold.
Average Revenue = Total Revenue / No. of Units
7. Supply :
Supply refers to “ Actual quantity offered for sale by a producer at a given price
at a given time”.
Supply depends upon willingness to sale. Supply is a flow. It cannot be more than
stock. It can be less than or equal to stock. In case of perishable goods supply & stock are
equal to each other.
Supply is a relative term. It is always shown with the time factor & price factor.
Below reservation price producer will not be ready to supply a commodity at market.
Supply of a producer depends upon price of a commodity, Technology, government policies,
climatic conditions, cost of production etc.
8. Individual supply schedule :

Individual supply refers to the actual quantity offered for sale by a producer at a
given price at a given time”. Individual supply schedule shows actual quantity offered for
sale by a producer at different prices of a commodity, it shows direct & position
relationship between price & quantity supplied. At higher the price, more quantity is
offered for sale & vice versa.
Individual supply depends upon capacity of production, willingness to sale, price of a
commodity, technology etc.
Individual supply curve is a diagrammatic presentation of individual supply
schedule.

9. Reservation price :
Reservation price is the minimum price of supply. Below this price producer may not
be ready to sale a commodity at market. It includes minimum amount of profit.
Reservation price includes rewards / price paid to all factors & normal profit.
Reservation price is generally low for perishable commodities. It is because they cannot be
stored for a longer period & losses utility after some period of time.
If market price is more than reservation prices, the seller will offer his stock for sale.
Reservation price differs from seller to seller. It is determined by considering cost of
production, nature of a commodity, need of cash, substitutes, storage facility etc.
10. Market supply :

Market supply refers to the actual quantity offered for sale by all producers at a given
price at a given time. It is a sum of individual’s supply. It is macro concept. It is always more
than individual supply.
Market supply depends upon price of a commodity, Technology, cost of production,
government policies etc. At higher price, market supply increases. Producers offer more
quantity for sale to earn more profit & vice versa.
Market supply curve is a diagrammatic presentation of market supply scheduled
which shows direct & positive relationship between price & supply of a commodity.
GIVE REASONS
1. Supply is directly related to price.

OR Supply curve has positive slope.
Reasons:
1. The supply curve has a positive slope showing the direct relationship between price &
Quantity supplied.
2. At higher price, more quantity is offered for sale. It is because there are more chances of
earning profit. (If cost of production is constant). To avail the opportunity of earning
profit, producers supply more.
3. At lower prices, less quantity is offered for sale. It is because there are less chances of
earning profit & more chances of incurring losses. Therefore to avoid losses less
quantity is offered at Market for sale.

4. Example : Price Supply

(In Rs.) (In units)
Conclusion : Price & supply are directly related with each other.
10 10
20 20
2. Stock can exceed supply. 30 30
OR Supply cannot exceed stock. 40 40
Reasons: 50 50
1. Supply means actual quantity offered for sale by a producer at a Given price at a given
time.
2. Stock means total quantity available with producer for sale at a Given price.
3. Stock is reservoir whereas supply is a flow. Stock is a source of Supply and hence can
exceed supply.
4. What producer is having called as stock & what producer is offering At market called as
supply. Supply is a part of stock & cannot exceed Stock.
Conclusion : Supply & stock are different from each other.
3. When price rises, supply expands.

Reasons:
1. Law of supply state direct relationship in between price & supply of a commodity.
2. While proving law, other factors influencing supply should be Constant.
3. When price rises, supply expands. It is because producers can earn more profit at higher
prices.
4. At lower prices, less quantity is offered for sale to avoid losses.
5. When supply changes due to change in other factors such as cost of production,
Technology etc. then it is called as increase or decreases in supply.
6. When supply changes due to price factor it is called as Expansion & contraction of
supply.
Conclusion : In short when price rises, supply expands & not increases.
4. The supply of agricultural commodity is relatively inelastic. OR

Sometimes the supply of agricultural goods is considered as an exception to the law
of supply.
Reasons :
1. The production and supply of agricultural goods depends upon monsoon especially in
India.

2. Therefore, the period of shortage of monsoon or heavy floods may cause very less
production and less supply of agricultural goods.
3. In this situation, a rise in price of agricultural goods may not cause expansion in supply
and hence it may turn out to be an exception to the Law of Supply.
5. With a slight change in the price, if supply varies in a greater proportion then
supply is said to be relatively elastic.
Reasons:
1. When a proportionate change in price brings more proportionate change in supply of a
commodity then it is called as Relatively Elastic supply.
2. Here response of supply is more than change in price.
3. Elasticity of supply is greater than one. Relatively Elastic supply curve is more flatter.
6. Supply curve of labour is backward bending.

Reasons :
1. Law of supply is not applicable to supply of labour. Supply of labour means number of
working hours & price of labour means wages rate paid to labourers.
2. When wage rate rises workers work more number of hours at initial stage. It is because
to earn more amount of income. When wage rate rises beyond a limit then workers
work less number of hours. It is because of two reasons.
3. Due to physical and mental limitations workers cannot work more number of hours.
4. By reducing number of working hours there is no any income loss to workers. Therefore
workers utilise free to maximise their family welfare.
Price Supply of Labour
(Wages Rate) (Working hours)
(In. Rs.) (In hours)
60 6
70 7
80 8
90 9
100 8.30
110 8
120 7.30
Conclusion : Due to this supply curve of labour moves upward at initial stage and later on it
bends on backward side. So, supply curve of labour is backward bending.

7. Due to speedy Transport, supply increases.

Reasons:
1. Supply refers to actual quantity offered for sale by a producer at a given price, at a given
time.
2. Production is produced at factory & offered for sale at market. It is produced in advance
in anticipation of future demand.
3. It is offered for sale at market as per the need. There is a time gap in between
production & consumption. During this gap, production is stored at godown.
4. With the means of transport, it is offered for sale at market. Transport creates place
utility in a commodity.
Conclusion : So, Transport helps to meet demand of consumers.
8. Supply & stock of perishable goods are equal to each other.

Reasons :
1. Perishable goods includes milk, vegetables, fruits, fish, meat e etc.
2. Life of perishable goods is very short.
3. They cannot be stored for longer period.
4. If stored they lose its utility & there is a possibility of heavy losses to seller
5. So, producers.
Conclusion : Supply & stock of perishable goods are equal to each other.
9. A seller refuses to sell below his minimum price.

Reasons:
1. A seller always keeps a reservation price for his product. It is the minimum price below
which he is not willing to sell even a sing al unit of the commodity.
2. The sellers’ reservations price serves as the basis of supply. If the seller finds the market
price of a product to be less than the minimum price expected by him, he will refuse to
sell, and wait for the market price to increase.
3. When the price is equal to or greater than his reservation price, the seller will sell the
commodity.
4. Below the reservation price the seller to sell because any price less than the reservation
price implies of loss to him.

10. Price is the sole determinant of supply.

Reasons :
1. Supply means actual quantity offered for sale by producers at a given price at a given
time.
2. Supply changes due to number of factors such as price of a commodity, cost of
production, Technology, import, export, government policies etc.
Conclusion : Price is one of the determinant & not only determinant of supply.
Increase in the prices of factors reduces the supply of different goods and services.
Reasons:
1. Supply is an outcome of the process of production.
2. For production activity, the factors of production like land, labour. Capital and
enterprises are used.
3. If the prices of factors rise, (like rise in rent, wages, etc.) the cost of production also
rises.
4. This in turn reduces the motive of a producer to produce more, as increased cost of
production reduces profit margin.
Conclusion : Therefore, an increase in the prices of factors reduces the supply of
different goods and services.
DISTINGUISH BETWEEN
1. Stock V/s Supply :
Sr. Point of
stock Supply
No. Difference
Stock means “Total quantity Supply means “Actual quantity
1. Meaning available with producer for sale offered for sale by a producer at
at a given price, at a given time.” a given price at a given time.”
Stock is always more than or Supply is always less than or
2. Quantity
equal to supply. equal to stock.
3. Scope Stock can exceed supply. Supply cannot exceed stock.
Stock always depends upon Supply depends upon price of a

Determining
4. capacity of Production, commodity, willingness to sell.
Factor
Technology & other factors. Aim behind sell etc.

2. Individual Supply V/s Market Supply :

Sr. Points of
No. Individual Supply Market Supply
Difference
It refers to the actual quantity It refers to the total quantity
1. Meaning offered for sale by a producer at offered for sale by all producers
a given price at a given time. at a given price at a given time.
Individual supply is a micro Market supply is a macro

2. Concept
concept. concept.
Individual supply is a part of Market supply is a sum of all

3. Quantity market supply. It is always less individuals supply. It is always
than Market supply. more than individual supply.
3. Expansion (Extension) in supply and Contraction in Supply.
Sr. Point of Expansion (Extension)

Contraction in supply
No. Difference In supply
When more quantity is offered for When less quantity is offered for
1. Meaning sale due to rise in price then it is sale due to fall in price then it is
called as Expansion of supply. called Contraction of supply.
There is movement of supply There is movement of supply

2. Curve
curve to right side. curve to left side.
4. Relatively elastic Supply and Relatively inelastic supply :
Sr. Point of
Relatively elastic Supply Relatively inelastic supply
No. Difference
When a proportionate change in When a proportionate change in
the price of a commodity brings the price of a commodity brings
about greater offer is than about less than proportionate
1. Meaning
proportionate change in its change in its quantity supplied,
quantity supplied, the supply is the supply is said to be relatively
said to be relatively elastic. inelastic.
In the case of relatively elastic In the case of relatively inelastic
Numerical supply, the numerical value of supply, the numerical value of
2.
value the elasticity of supply is greater the elasticity of supply is less
than one. than one.
4. Curve It is FLATTER curve. It is STEEPAR curve.

5. Average Revenue and Average cost :

Sr. Point of
Average Revenue Average cost
No. Difference
Average revenue refers to Average cost refers to the per
1. Meaning
revenue per unit of output sold. unit total cost of production.
Average revenue is calculated

Average revenue is calculated
with the help of the following
with the help of the following
formula:
formula:
2. Formula AR = Where AR = Average
AC = Where AC = Average cost,
Revenue, TR = Total Revenue
TC = Total Cost and TQ – Total
and TQ – Total Quantity of
Quantity of Output.
Output.
6. Demand Curve V/s Supply Curve
Sr. Point of
Demand Curve Supply Curve
No. Difference
Demand curve is a diagrammatic Supply curve is a diagrammatic
presentation of demand presentation of supply schedule
1. Meaning schedule which shows inverse which shows direct relationship
relationship in between Price & in between price & supply of a
Demand for a commodity. commodity.
Demand Curve slopes downward Supply curve slopes upward

Curve &
2. from left to right. It has negative from left to right . It has positive
slope
slope. slope.
Demand depends upon price of a
Supply depends upon price of a
commodity , Income of
Determining commodity cost of production,
3. consumers, standard of living ,
factor technology, Nature of market
Taste, habbits , fashions of
etc.
consumers etc.
Relationship Price & Demand are inversely Price & supply are directly
4.
with price related with each other. related with each other.
7. Demand V/s Supply :
Sr. Point of
Demand Supply
No. Difference
Demand means “Quantity Supply means “Actual quantity
1. Meaning demanded by consumers at a offered for sale by producer at a
given price at a given time. given price at a given time.

Relationship Price & Demand are inversely Price & supply are directly
2.
With price related with each other. related with each other.
Demand depends upon price of a

Supply depends upon price of a
commodity, Income of
Determining commodity cost of production,
3. consumers, standard of living ,
factor technology, Nature of market
Taste, habits, fashions of
etc.
consumers etc.
4. Source Demand comes from consumers. Supply comes from producers.
8. Increase in Supply and Decrease in Supply :
Sr. Point of
Increase in supply Decrease in Supply
No. Difference
A rise in supply caused by A fall in supply caused by
favourable changes in other unfavourable changes in other
1. Meaning
factors than price is called factors than price is called
increase in supply. decrease in supply.
Increase in supply is caused by: Decrease in supply is caused by:
1. Fall in the cost of production. 1. Rise in the cost of production.
2. Causes
2. Reduction in taxes. 2. Rise in taxes.
3. Use of modern technology. 3. Use of traditional technology.
There is shifting of supply curve There is shifting of supply curve
3. Curve
to right side. to left side.
9. Perfectly Elastic Supply and perfectly Inelastic Supply :
Sr. Point of
Perfectly Elastic Supply Perfectly Inelastic Supply
No. Difference
When a proportionate change in When a proportionate change in
the price of a commodity brings the price of a commodity brings
an infinite (unlimited) no (zero) proportionate change
1. Meaning
proportionate change in its in its quantity supplied, the
quantity supplied, the supply is supply is said to be perfectly
said to be perfectly elastic. inelastic.
In the case of perfectly elastic In the case of perfectly inelastic
Numerical
2. supply, the numerical value of supply, the numerical value of
value
the elastic of supply is infinite. the elasticity of supply is zero.
It is horizontal line & parallel to It is vertical line & parallel to

4. Curve
‘OX’ axis. ‘OY’ axis.

 State whether the given statements are TRUE or false.

1. Stock means potential supply.
2. Stock is a flow.
3. Supply is a flow.
4. Stock is reservoir.
5. Stock cannot exceed supply.
6. Stock is always more than or equal to supply.
7. Stock & supply of perishable goods are equal to each other.
8. Reservation price is minimum price of supply of goods.
9. Reservation price includes minimum amount of profit.
10. Below reservation price, producer does not sell goods.
11. For perishable goods, reservation price is low.
12. Price & supply are inversely related with each other.
13. During very short period supply is perfectly inelastic.
14. During long period supply is elastic.
15. Natural calamities increase supply of goods.
16. Modern technology increases supply of goods.
17. Cost of production & supply are inversely related with each other.
18. Supply curve has negative slope.
19. Supply curve slopes upward from left to right.
20. Supply curve of labour is backward bending.
21. Exception supply curve slopes downward.
22. When price rises, supply increases.
23. When price falls, supply contracts.
24. Price is the sole determinant of supply.
25. Demand & supply are opposite forces.
26. Supply curve indicates seller’s behaviour in response to change in price.
27. If monsoon fails, the supply of food grains would decrease.
28. Supply may increase even if the price of a commodity has not risen.
29. When there is a technological advancement, supply tends to increase.
30. Supply of antique is exceptional.
⦿⦿⦿⦿

Supply (Producers' Behavior)

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THE WINNERS’ ACADEMY ECONOMICS PRODUCER’S BEHAVIOUR

Q.1 Explain the concept of output, stock & supply?

SYJC | COMMERCE Page 117 ECONOMICS

Q.2 What is individual supply?

ECONOMICS Page 118 SYJC | COMMERCE

Q.3 What is Market supply?

Price Supply Market supply

SYJC | COMMERCE Page 119 ECONOMICS

Q.4 “Market supply depends upon many factors.” OR

ECONOMICS Page 120 SYJC | COMMERCE

Q.5 Explain Law of supply.

SYJC | COMMERCE Page 121 ECONOMICS

Q.6 What are the assumptions / conditions of law of supply?

1) No change in Cost of Production :

ECONOMICS Page 122 SYJC | COMMERCE

3) No change in government policies :

Q.7 What are the exceptions to law of supply? OR

SYJC | COMMERCE Page 123 ECONOMICS

Price Supply of labour

ECONOMICS Page 124 SYJC | COMMERCE

Q.8 What do you mean by variations in supply?

SYJC | COMMERCE Page 125 ECONOMICS

Variations in supply are of two types.

Q.9 What do you mean by changes in supply?

ECONOMICS Page 126 SYJC | COMMERCE

in cost of production, use of modern technology, favourable govt. Policies, favourable

Q.10 What is Price Elasticity of supply? What are its types?

SYJC | COMMERCE Page 127 ECONOMICS

Q.11 What are the methods of measuring Price Elasticity of supply ?

ECONOMICS Page 128 SYJC | COMMERCE

While measuring Elasticity first supply

Q.12 What are the determinants of Price Elasticity of supply?

SYJC | COMMERCE Page 129 ECONOMICS

6. Availability of factors of production :

ECONOMICS Page 130 SYJC | COMMERCE

Revenue = Quantity price

SYJC | COMMERCE Page 131 ECONOMICS

DEFINE THE TERM

ECONOMICS Page 132 SYJC | COMMERCE

production, technology, government policies etc. Out of these factors, price of a

8. Individual supply schedule :

SYJC | COMMERCE Page 133 ECONOMICS

10. Market supply :

1. Supply is directly related to price.

ECONOMICS Page 134 SYJC | COMMERCE

4. Example : Price Supply

3. When price rises, supply expands.

4. The supply of agricultural commodity is relatively inelastic. OR

SYJC | COMMERCE Page 135 ECONOMICS

6. Supply curve of labour is backward bending.

ECONOMICS Page 136 SYJC | COMMERCE

7. Due to speedy Transport, supply increases.

8. Supply & stock of perishable goods are equal to each other.

9. A seller refuses to sell below his minimum price.

SYJC | COMMERCE Page 137 ECONOMICS

10. Price is the sole determinant of supply.

1. Stock V/s Supply :

3. Scope Stock can exceed supply. Supply cannot exceed stock.

Stock always depends upon Supply depends upon price of a

ECONOMICS Page 138 SYJC | COMMERCE

2. Individual Supply V/s Market Supply :

Individual supply is a micro Market supply is a macro

Individual supply is a part of Market supply is a sum of all