Theory of Supply Class 11 Notes

1) Meaning of Supply

Supply refers to the quantity of a commodity that producers are willing and able to sell at various prices over a certain period. It is a fundamental concept in microeconomics that illustrates how producers respond to price changes in the market.

2) Types of Supply

i) Individual Supply

• This represents the quantity of a good that a single producer is willing to supply at different prices. It is specific to one seller and is influenced by that seller’s costs, production capabilities, and business goals.

ii) Market Supply

• Market supply is the total quantity of a good or service that all producers in a market are willing to sell at different prices. It is the sum of individual supplies from all suppliers in the market.

3) Difference Between Supply and Stock

• Supply refers to the quantity of a commodity available for sale at various prices, reflecting a producer’s readiness to sell.
• Stock refers to the total quantity of a commodity that is available in the market at a specific time, regardless of whether it is for sale or not.

4) Determinants of Supply

i) Price of the Given Commodity

• Higher prices typically motivate producers to supply more of the commodity due to potential higher profits. Conversely, lower prices can lead to a decrease in supply.

ii) Price of Other Goods

• The supply of a commodity can be affected by the prices of related goods. If the price of a substitute rises, producers may shift their resources to produce more of that good, reducing the supply of the original commodity.

iii) Price of Factors of Production (Inputs)

• Changes in the costs of inputs (like labor, and raw materials) can affect supply. An increase in input prices can reduce supply as production becomes less profitable.

iv) State of Technology

• Advancements in technology can improve efficiency and reduce costs, leading to an increase in supply. Conversely, outdated technology can hinder production capabilities.

v) Government Policy (Taxes and Subsidies)

• Taxes can decrease supply by increasing production costs, while subsidies can increase supply by lowering production costs.

vi) Goals/Objectives of the Firm

• The objectives of a firm, such as maximizing profit or market share, can influence how much they are willing to supply.

5) Determinants of Market Supply

i) Number of Firms in the Market

• An increase in the number of firms usually increases overall market supply, as more producers contribute to the total quantity available.

ii) Future Expectations Regarding Price

• If firms expect prices to rise in the future, they may hold back supply now to sell more later. Conversely, if they expect prices to fall, they might increase the current supply.

6) Supply Function

The supply function is a mathematical representation that shows the relationship between the quantity supplied of a good and its determinants, mainly its price.

7) Supply Schedule

i) Individual Supply Schedule

• This is a table that shows the quantity of a good that an individual supplier is willing to sell at different prices.
  Example: If the price of apples is $1, the supplier might supply 100 apples; at $2, they might supply 200 apples.

ii) Market Supply Schedule

• This aggregates individual supply schedules into one table that reflects total market supply at various prices.
  Example: At $1, the total market supply might be 500 apples (from all suppliers), and at $2, it might increase to 800 apples.

8) Supply Curve

i) Individual Supply Curve

• A graphical representation of an individual supply schedule, typically upward sloping, showing the relationship between price and quantity supplied.

ii) Market Supply Curve

• This curve aggregates all individual supply curves, illustrating the total quantity supplied in the market at various prices.

9) Law of Supply

i) Explanation

• The law of supply states that, all else being equal, an increase in price results in an increase in quantity supplied.

ii) Assumptions of Law of Supply

• It assumes ceteris paribus (all other factors remain constant) and a profit motive among suppliers.

iii) Reasons for Law of Supply

• a) Profit Motive: Higher prices lead to higher potential profits, encouraging more supply.
• b) Change in Number of Firms: More firms can increase supply as competition rises.
• c) Change in Stock: An increase in stock availability can influence supply levels.

iv) Exceptions to the Law of Supply

• a) Future Expectations: Anticipated future price increases can reduce current supply.
• b) Agricultural Goods: Supply may be inelastic due to growth cycles.
• c) Perishable Goods: They must be sold quickly, regardless of price.
• d) Rare Articles: Limited availability can restrict supply.
• e) Backward Countries: Limited resources and technology can prevent supply increases.

Elasticity of Supply Class 11 Notes

10) Change in Supply

i) Due to Change in Price

• A change in price leads to a movement along the supply curve, indicating a change in quantity supplied, not in supply itself.

ii) Due to Change in Other Factors

• Non-price factors (like technology, input prices, etc.) can shift the supply curve, indicating a change in supply.

11) Movement Along the Supply Curve (Change in Quantity Supplied)

i) Downward Movement (Contraction)

• A decrease in price leads to a contraction in the quantity supplied.

ii) Upward Movement (Expansion)

• An increase in price leads to an expansion in the quantity supplied.

12) Shift in Supply Curve (Change in Supply)

i) Rightward Shift

• Indicates an increase in supply at all price levels, often due to factors like improved technology or a reduction in input costs.

ii) Leftward Shift

• Indicates a decrease in supply at all price levels, often due to increased production costs or adverse changes in technology.

13) Difference Between Movement and Shift

• Meaning:
• Movement refers to changes along the supply curve (quantity supplied change) due to price changes.
• Shift refers to changes in the supply curve itself (supply change) due to non-price factors.
• Reasons:
• Movement occurs from price changes; shift occurs from changes in determinants of supply.
• Other Names:
• Movement is also called a change in quantity supplied; the shift is called a change in supply.
• Types:
• Movement involves upward and downward movements along the curve; shift involves leftward and rightward shifts of the entire curve.