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Basic Elements of Demand and Supply

Supply Schedule

The Law of Supply states that when the price of a commodity falls, its supply decreases and when the price of a commodity rises, its supply increases; other things remaining constant. Supply refers to the amount of quantity that a firm is willing to produce or offer for sale in the market. Supply schedule can be defined as a relation between the price of goods or services versus and the number of goods supplied. Now let us discuss the Supply Schedule in detail.

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Supply Schedule

We can express the Supply of a commodity in the following three alternative ways:

  1. Supply function
  2. Supply schedule
  3. Supply curve

Let us now study each of these ways.

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Supply Function

The supply function of an individual supplier expresses his behaviour in relation to what he offers at the prevailing prices in the market in the algebraic form. In supply function, quantity supplied is expressed as a function of various variables.

SX = f(PX, CX, TX)

Where,

SX = Quantity supplied

PX = Price of the commodity

CX = Cost of production

TX = Technology of production

Supply Schedule

It is a statement in the form of a table that shows the different quantities of a commodity that a firm or a producer offers for sale in the market at different prices.

It denotes the relationship between the supply and the price, while all non-price variables remain constant. There are two types of Supply Schedules:

  1. Individual Supply Schedule
  2. Market Supply Schedule

Supply Schedule

(source: freepik.com)

Individual Supply Schedule

It is a supply schedule that depicts the supply by an individual firm or producer of a commodity in relation to its price. Let us understand it with the help of an example.

Price per unit of commodity X (Px) Quantity supplied of commodity X (Dx)
100 1000
200 2000
300 3000
400 4000
500 5000

 

The above schedule depicts the individual supply schedule. We can see that when the price of the commodity is ₹100, its supply is 1000 units. Similarly, when its price is ₹500, its supply increases to 5000 units.

Thus, we can conclude that as the price falls the supply decreases and as the price rises the supply also increases. Hence, there exists a direct relationship between the price and quantity supplied.

Individual Supply Curve

It is a graphical representation of the individual supply schedule. The X-axis represents the supply and Y-axis represents the price of a commodity. There exists a direct relationship between price and quantity supplied of a commodity.

Market Supply Schedule

It is a summation of the individual supply schedules and depicts the supply of different customers for a commodity in relation to its price. Let us understand it with the help of an example.

Price per unit of commodity X Quantity supplied by firm A (QA) Quantity supplied by firm B (QB) Market Supply            QA + QB
100 1000 3000 4000
200 2000 4000 6000
300 3000 5000 8000
400 4000 6000 10000
500 5000 7000 12000

 

The above schedule shows the market supply of commodity X. When the price of the commodity is ₹100, firm A supplies 1000 units while the firm B supplies 3000 units.

Thus, the market supply is 4000 units. Similarly, when its price is ₹500, firm A supplies 5000 units while firm B supplies 7000 units. Thus, it’s market demand increases to 12000 units.

Thus, we can conclude that whether it is the individual supply or the market supply, the law of supply governs both of them.

Market Supply Curve

It is a graphical representation of the market supply schedule. The X-axis represents the market supply in units and Y-axis represents the price of a commodity.

Solved Example on Supply Schedule

Question: Enumerate the determinants of supply? 

Answer –

In addition to the price of a commodity, there are also other factors that govern or determine the supply of the commodity. Some of the major determinants of supply are:

  1. Cost of the factors of production
  2. Change in technology
  3. Price of related goods
  4. Change in the number of companies in the industry
  5. Taxes and Subsidies
  6. The goal of a business firm
  7. Natural Factors
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Tata Comfortsuhani jain Recent comment authors
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suhani jain
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suhani jain

A consumer consumes an inferior commodity when his income:

Becomes nil
Remains the same
Falls
Rises
Ans: 4. Rises

This is because when the income of a consumer rises he buys goods of better quality rather spending more on inferior goods.

AbuBakar Zahid
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AbuBakar Zahid

How is it possible?
You’re wrong.
You’re saying that when a consumer’s income increases, he buys the products of good quality.

“It means that he buys superior goods.”
Correct what you said, a consumer consumes a inferior good when its income decreases.

Tata Comfort
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Tata Comfort

He consumes inferior goods when his income falls because he cannot shift to other goods due to his low purchasing power

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