The amount of a commodity a company can provide for sale at a specific time is called supply. In this definition, four factors are highlighted, which are quantity of a commodity, price of the commodity, period, and willingness to sell. It doesn’t show how much the company sells; rather, it just shows the capacity or willingness to sell. Supply shows the quantity that the company is prepared to sell in the market for a specific price. For example, Samsung’s market supply of TV sets does not represent the complete available stock. It is the quantity that Samsung is prepared to sell in the market.
- The supply for a commodity is always expressed in terms of price. It is because, if the price of a commodity changes, the amount supplied may as well change.
- It is the quantity a business is willing to provide over a certain period (a day, a week, a month, or a year). As a result, supply is classified as a Flow Variable.
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Movement Along Supply Curve (Change in Quantity Supplied)
Change in quantity supplied occurs when the quantity supplied of a commodity changes due to a change in its price while the other factors remain constant. It is represented graphically as a movement along the same supply curve. There are two cases of movement along the same supply curve. It may be either,
- Expansion of Supply (An Upward Movement)
- Contraction of Supply (A Downward Movement)
I. Expansion of Supply
When there is an expansion in the quantity supplied of a commodity because of a rise in own price of the commodity, by keeping other factors constant, it is known as an Expansion of Supply. It results in an upward movement along the same supply curve. It is also known as an Extension in Supply.
| Price (₹) | Quantity (in units) |
|---|---|
| 10 | 150 |
| 15 | 250 |
Here, at ₹10, the seller is willing to sell 150 units of goods; however, at ₹15, the seller is willing to sell 250 units of goods. This scenario shows that the rise in prices of the goods will leads to expansion in quantity supplied (other factors remain constant); i.e., Expansion of Supply.
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Here, S is the initial supply curve showing the relationship between quantity supplied and price of the commodity. Quantity supplied is show on the Y-axis and Price is shown on the X-axis. When the price rises from ₹10 to ₹15, the quantity supplied expands from 150 units to 250 units (also known as the expansion of supply), which results in an upward movement from A to B along the same supply curve SS.
II. Contraction of Supply
When there is a contraction in the quantity supplied of a commodity because of a fall in the respective price by keeping other factors constant, it is known as a Contraction of Supply. The contraction in supply results in a downward movement along the same supply curve.
| Price (₹) | Quantity (in units) |
|---|---|
| 15 | 150 |
| 10 | 100 |
Here, at ₹15, the seller is willing to sell 150 units of goods; however, at ₹10, the seller is willing to sell 100 units of goods. This scenario shows that the decrease in prices of the goods will leads to decrease in quantity supplied (other factors remain constant); i.e., Contraction of Supply.
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Here, S is the initial supply curve showing the relationship between quantity supplied and price of the commodity. Quantity Supplied is shown on the Y-axis and Price is shown on the X-axis. When the price falls from ₹15 to ₹10, the quantity supplied contracts from 150 units to 100 units (also known as the Contraction of Supply), which results in a downward movement from B to A along the same supply curve SS.
Shift in Supply Curve (Change in Supply)
A supply curve is used to show the relationship between a commodity’s price and quantity supplied, assuming that all other factors remain constant. However, sooner or later, other factors will be bound to change. When one of the other factors changes, other than the own price of the commodity, then it is referred to as a Shift in the Supply Curve. Thus, changes in supply occur when the supply for a commodity changes as a result of a change in a factor other than the price of the commodity. There are two cases in the shift in supply curve,
- Increase in Supply (A Rightward Shift)
- Decrease in Supply (A Leftward Shift)
I. Increase in Supply
An increase in the supply of a commodity due to factors other than the own price of the commodity is known as an Increase in Supply. In simple terms, the supply for a commodity increases at the same price, because of changes in other factors, other than own price of the commodity. An increase in supply results in a rightward shift in the supply curve.
| Price (₹) | Quantity (in units) |
|---|---|
| 15 | 50 |
| 15 | 75 |
Here, at ₹15, initially the seller is willing to sell 50 units; however, at the same price of ₹15, the seller is willing to sell 75 units of commodity. This increase in supply is caused by changes in other factors of supply, other than own price of the commodity.
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Here, quantity supplied is shown on the X-axis and price is shown on the Y-axis. S1S1 is the initial supply curve showing 50 units of quantity supplied at ₹15. Increase in supply from 50 units to 75 units at the same price of ₹15, causes a rightward shift in the supply curve from S1S1 to S2S2.
II. Decrease in Suppply
A decrease in the supply of a commodity due to factors other than the own price of the commodity is known as a Decrease in Supply. In simple terms, the supply for a commodity decreases at the same price, because of changes in other factors, other than own prices of the commodity. A decrease in supply results in a leftward shift in the supply curve.
| Price (₹) | Quantity (in units) |
|---|---|
| 15 | 75 |
| 15 | 50 |
Here, at ₹15, initially the seller is willing to sell 75 units; however, at the same price of ₹15, the seller is willing to sell 50 units of commodity. This decrease in supply is caused by changes in other factors of supply, other than own price of the commodity.
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Here, quantity supplied is shown on the X-axis and price is shown on the Y-axis. S1S1 is the initial supply curve showing 75 units of quantity supplied at ₹15. Increase in supply from 75 units to 50 units at the same price of ₹15, causes a leftward shift in the supply curve from S1S1 to S2S2.
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