PRINCIPLES OF ECONOMIC Supply Law of Supply Changes in Supply Elasticity of Supply Equilibrium of Demand& Supply BY Ms. Samina Ansari Lecturer.

PRINCIPLES OF ECONOMIC

Supply Law of Supply

Changes in Supply

Elasticity of Supply

Equilibrium of Demand& Supply

BYMs. Samina Ansari

Lecturer of EconomicsDep: Economics & Comm

GeoDADC

DEFINITION OF SUPPLY

“ Supply is a schedule of the amount of a good that would be offered for sale at all possible prices, at any instant of time or during any period of time, e.g. a day , a week & so on.”

Definition of Law of Supply:“If all other things remain the same,

the quantity supplied of a product increases as a result of an increase in price and vice- versa.”

LAW OF SUPPLY

Assumptions of Law of Supply

1- Cost of production (which depends upon) Price of raw material Tax rates Technology & methods of production Wage bill2- Floods, war etc3-Change of season4- Number of producer5- Political situation

Schedule(Law of supply)

SUGAR Price (Kg) QS(Kg) P1 (2) Q1 (20) P2 (4) Q2 (40) P3 (6) Q3 (60)

Diagram of Law of Supply

“ The supply curve is upward sloping from left to right showing a positive relationship b/w price & quantity supplied.”

e Economics Basics: Demand & Supply

Investopedia http//:www.investopedia.com

Demand

CHANGES IN SUPPLY

What Does Change In Supply Mean?

A term used in economics to describe when the suppliers of a given good or service have altered their production or output. A change in supply can be brought on by new technologies, making production more efficient and less expensive, or by a change in the number of competitors in the market.

There are TWO types of change in supply; 1. Movement ALONG the supply curve ( Extension & Contraction of supply).

2. SHIFTS in the supply curve ( Rise & Fall in supply).

1-A movement ALONG the supply curve

A movement along the supply curve is caused by a change in PRICE of the good or service. For instance, an increase in the price of the good results in an EXTENSION of supply (quantity supplied will increase), whilst a decrease in price causes a CONTRACTION of supply (quantity supplied will decrease).

A rightward shift represents an increase in the quantity supplied (at all prices) S1 to S2, whilst a leftward shift represents a decrease in the quantity supplied (at all prices). S1 to S3.

2-A SHIFT in the supply curve (Rise & Fall in Supply)

A shift in the supply curve is caused by a change in any non-price determinant of supply. The curve can shift to the right or left.

Basic reasons are in the following. A change in cost of production. A change in the agricultural output. Changes in tax rates. Development of means of transport. Law & order situation. Development in science & technology.

RISE IN SUPPLY1-Supply is said to

rise when, at the same price, more quantity is offered for sale by the sellers.

2- The same quantity is offered for sale at low price.

FALL IN SUPPLY

The fall of supply is opposite to the rise of supply. Thus, when quantity supplied decreases at the same price or quantity supplied remains the same at the higher price: this would be the fall in supply.

ELASTICITY OF SUPPLY

Definition of Elasticity of supply:

Supply elasticity is defined as the percentage change in quantity supplied divided by the percentage change in price. The price elasticity of supply is often summarized by this handy formula:

es = % in Qs % in price

MEASUREMENT OF ELASTICITY OF SUPPLY

PERCENTAG METHOD“ Percentage change in quantity

supplied is measured in relation to percentage change in its price.”

es = % change in quantity supplied % change in priceFormula: es = q x p p x q

DEGREES OF ELASTICITY OF SUPPLY

1.Equal to unity (es =1) 2.Greater than unity(es>1)

3. Less than unity (es<1)

1.Equal to unity (es =1)

If % change in quantity supplied is equal to % change in price elasticity is equal to 1 or unity.

2.Greater than unity (es >1)

If % change in quantity supplied is great than % change in price, elasticity will be great than unity

3. Less than unity (es<1)

If the % change in amount supplied is less than % change in price than supply elasticity will be less than unity.

TWO EXTREMES OF ELASTICITY OF SUPPLY

1- Perfectly Elastic Supply Curve

2- Perfectly Inelastic Supply Curve

Perfectly Elastic Supply Curve

Definition:“When the

quantity supplied

extends to infinity a certain price. It will be

perfectly elastic supply curve.”

Perfectly Inelastic Supply Curve

Definition:“When the change

in price becomes totally in

effective on the quantity supplied of a product the supply becomes

perfectly inelastic.”

EQUILIBRIUM OF DEMAND & SUPPLY&

PRICE DETERMINATION• What Does

Economic Equilibrium Mean?

When supply and demand are equal (i.e. when the supply function and demand function intersect) the economy is said to be at equilibrium.

Equilibrium Price

Equilibrium QuantityMarket

Equilibrium

Equilibrium Price

“When the price at which the quantity demanded equal to quantity supplied is called Equilibrium Price.”

EQUILIBRIUM QUANTITY

“ The quantity bought or sold or the amount demanded & supplied at the

equilibrium prices is known as equilibrium amount or Equilibrium

Quantity.”

MARKET EQUILIBRIUM

When supply and demand reach an agreement, it

is called market equilibrium. If a market

reaches this point, there is no pressure

from any sides to change the

prices. The invisible hand leadsto supply and demand. This

cartoon shows that equilibrium is the point

where supply meets demand in the market.

SCHEDULE & DIAGRAM

REFERENCES Micro Economics

Michel Shams Micro Economics Theory & Application Edger.k.Browing Principles of Economics Abdul Haleem Khawaja

Principles of Economics Habib Ullah Waseer

THE END