uh welcome to the next module of the first week of our discussion the introductory uh
course the foundation course in managerial uh economics and we started with introduction
of the demand supply framework in the previous lectures and we developed the demand curve
we said uh the demand the individual demand curve basically fallows the law of demand
where when prices fall people demand for more goods now today and we also looked at different
determinants of demand different shifts uh what shifts the demand curve similarly today
we are going to look at the supply curve and its determinants .
so what is supply supply is basically other things remaining same
supply curve is relationship between price and quantity of a particular good that the
producers are willing to supply so uh again very similar to the uh if you have followed
the last previous classes on demand you will be able to relate more to the uh supply curve
that we are going to develop right now basically supply what when a producer decides how much
to supply is he just dependent on the price of the good no it is dependent on the lot
of factors say for example the supply of we started with the uh market for ice creams
when we discussed demand so a producer who is supplying ice creams what is his supply
dependent on it is dependent on the price of ice cream and it is also dependent on other
factors say price of ice cream . this is of supply of ice cream is a function
of price of ice cream and what else say for example milk is required for producing ice
cream so if the price of milk goes up then the its a problem to the suppliers their cost
goes up so their willingness to supply more of ice cream goes down so supply is also a
function of price of say milk price of say other ingredients other ingredients are there
in ice cream then maybe supply of ice cream is dependent
on the cost of transportation transportation cost refrigeration cost and maybe taxes so
one can imagine lot of things which influence the supply of any product but what the the
supply curve that we are trying to develop here that is a relationship between the price
of the commodity and the supply of the commodity when i say other things remaining same i am
assuming all these other components or other variables they are fixed so supply curve or
the relationship the supply function that we are developing here is the relationship
between the price of the variable price of the uh product and the supply of the product
or the quantity supplied of the product other things remaining constant
so this is what we do and so these other things are the non price determinants of supply which
shift the demand curve now lets draw the supply curve now supply curve similar to the demand
curve uh supply curve also follows the law of supply
what is the law of supply it says that other things remaining same the quantity supplied
of a good rises when the price of the good rises and vice versa its kind of uh makes
sense it makes its its kind of understandable that when the price is going to increase the
producer is more interested in selling the product so that is the law of supply .
say for example for 1 person lets assume uh this is the price of ice cream and this is
the quantity that a particular uh supplier supplier 1 so this is his supply condition
when the price is 10 20 30 40 50 and 60 rupees he is willing to supply say he is willing
to say supply say uh 2 2000 kgs of ice cream okay so he is supplying to the market so this
is in 1000 kgs maybe so when if the price goes up he supplies 4 still goes up its 5
7 8 9 so this is his supply schedule so this is
his supply schedule so they are positively related as price goes up so does the quantity
that he is willing to supply so its a positively sloping supply curve is a positively sloping
curve so supply curve is a positively sloping curve so this is the supply curve of one single
individual how do we find out the supply curve of the entire market because that is what
we are aiming to do we are trying to find out the market conditions
the equilibrium price in the market from the individual demand and supply curve so how
do we get the market supply curve is the same way that we found out the market demand curve
what we see is basically so this is one person this is his willingness to supply there could
be another supplier in the market say another person whose supply schedule looks some something
like this he is maybe he is a uh less efficient supplier
so if the price is 10 he is able to supply only 0 units and when price is he cannot supply
unless and until the price is more than 10 say at 20 he is willing to supply 2 4 6 7
8 okay so this could be his supply similarly there are n number of lot of suppliers in
the market and at each price we sum up all the supply that the producers are willing
to do and we say that is the market supply curve say at 10 rupees the aggregate of all
the quantities is gives us the market supply at that price similarly at 20 the aggregate
of all the quantities that gives us the supply and that way we get the market supply curve
. so market supply or the quantity supplied
in the market is the sum of all individual quantity supplied by the sellers at each price
so in a market of say 3 sellers a b and c if at rs 30 per cone of ice cream a is willing
to supply 10 kgs of icecream b is willing to supply uh 20 kgs c 30 kgs then the market
supply at price of rs 10 is 60 kgs so again just to uh remember that at the very
beginning we have assumed this is a perfectly competitive market which means that the number
of suppliers is much much more than 2 or 3 so 2 or 3 suppliers in the market uh actually
very strictly speaking it violates the assumption of competition but this is just to explain
how the supply curve is the market supply curve is determined so in a perfectly competitive
market obviously the number of suppliers is going to be very very high but the supply
curve is determined in this way so again uh so so again coming back to uh
the supply function or the supply condition we are interested in knowing what affects
supply so this is the relationship between price and quantity in the market so obviously
if the price is going to move up or down similarly supply is going to move up or down so that
is the price determinant of supply that is price determining supply
but there are other factors like the supply function we wrote in the beginning and there
were lot of variables there lot of uh things which were uh influencing supply and we assumed
them to be uh same when we developed this supply curve now what happens if any of those
components those variables they change then what happens to supply that is what we are
interested in knowing also and they are called the non price determinants of supply .
so there can be various non price determinants of supply say for example input prices as
i said the prices of ingredients price of milk uh even the transportation cost all these
are costs to the supplier so any price goes up then the supplier is willing to supply
less so if input prices are going up so at the same price say the supplier was say at
uh when price was 30 rupees the supplier was willing to sell 5000 kgs of ice cream
now when costs go up when it is very difficult for the supplier to uh buy the ingredients
buy the milk pay the transportation charge etc he will be willing to supply less than
5000 kgs of ice cream so at the same price at 30 now probably he is supplying 3000 kgs
so in that case for and that happens at each price at each price the supplier is now willing
to supply less than what he was supplying earlier what does that mean that means that
the supply curve is shifting to the left so supply curve has shifted to the left this
is what happens again another determinant is technology now
the suppliers they use technology to produce now uh imagine there the same ice cream producer
uh he gets hold of a machine which produces ice cream quicker and more efficiently he
needs maybe less electricity he is able to produce uh more amount of ice cream in lesser
time in that case what happens is at the same price he is now willing to supply more because
the cost has gone down for him so in that case maybe he is willing to supply
at 3 at 30 at 30 rupees he is willing to supply 7 units so in that case for every price his
supply curve has shifted to the right another non price determinant of supply is number
of sellers this is kind of obvious if the quantity if the number of sellers here goes
up this total summation is going to go up and the supply curve is going to shift to
the right and if the number of some sellers uh say they are quitting the market so in
that case the supply curve is going to shift to the left
uh similar to the demand curve the supply curve is also influenced by expectations so
if the it may not happen so much in the case of ice cream i am not aware but say uh say
price of oil if the price of oil if the market is kind of uh speculating that the price of
oil is really going to go up in the future then the oil companies might like to hoard
the oil they might like to increase their inventory and reduce their supply today so
that they are able to uh sell the oil at a future point of time at a higher price so
this is what expectation does to supply . now lets take a example and finish off this
module of understanding the supply curve say uh so lets take the example of supply of ebooks
what happens if the ebook retailers reduce the price of ebooks so we have discussed about
lot of uh determinants of supply now which determinant is uh getting affected here
now here the price of ebook itself is changing so what happens is there is no movement of
the supply curve the movement is along the supply curve so if this is the supply of ebooks
then if the price of ebooks is reducing so is the supply of ebooks ebooks the supply
of ebooks is going to come down what happens if a fall in the cost of software
to produce ebooks happens if the uh so it is basically becoming cheaper to produce the
ebooks so when it is cheaper to produce the ebooks the same thing is going to happen the
supply cure is now going to shift to the right so basically uh at each price the supplier
is able to supply more number of ebooks and third is a situation where a rise in the
price of paperbacks happen so what what are paperbacks we discussed in the last lecture
also paperbacks are basically substitutes of ebooks the books that you generally get
in the market and they are basically the ebook market is replacing the market for paperbacks
so now if the if there is a rise in the price of paperbacks is it going to affect the supply
curve no it is not going to affect the supply curve because it is going to affect the demand
curve of the ebooks because the paperback is a substitute of the ebooks and price of
ebooks falling or rising is going to if the rise if there is a rise in the price of paperbacks
the demand for ebooks is going to increase and nothing is going to happen to the supply
curve so nothing is going to happen to the supply curves but obviously if there is a
rise in the price of paperbacks that is affecting the demand supply framework in the ebooks
market but that we are going to discuss in a later module
so that ends our discussion on supply curve we have developed the supply curve we know
what are the determinants we know how the supply curve shifts and in the following module
we are going to discuss on the we are going to use both the demand curve supply curve
bring them together in the market and see how they represent the market together and
how that determines the equilibrium price and quantity in the market thank you