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., , Chapter - 3, Theory of Supply, _____________________________________________, 1. What is supply?, Answer- Supply refers to the quantity of a commodity, that a firm is willing and able, to offer for sale, at each possible price during a given, period of time., 2. What is supply function?, Answer- Supply function shows the relationship, between quantity supplied for a particular commodity, and the factor influencing it., 3. State law of supply., Answer - Law of supply states that other factors, remaining constant , the quantity supplied of the, commodity rises due to rise in price of the commodity, and falls with fall in price of the commodity., , 4. What is supply curve?, Answer- Supply curve refers to a graphical, representation of supply schedule. It shows a direct
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., , relationship between price and quantity supplied,, keeping other factors constant. Supply curve is of two, types:, (a) Individual Supply Curve (b) Market Supply Curve, , 5. Draw an individual supply curve with the help of, a schedule., AnswerTable : Individual supply schedule, PRICE (₹), , QUANTITY (units), , 10, , 50, , 20, , 100, , 30, , 150, , 40, , 200, , 50, , 250
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., , 6. Draw a market supply curve with the help of a, schedule., , PRICE (₹), , Qty, Supplied, [Seller A], , Qty, Market, Supplied Supply, [Seller B] [Seller A+B], , 2, , 20, , 40, , 60, , 3, , 40, , 50, , 90, , 4, , 50, , 60, , 110, , 5, , 60, , 70, , 130
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., , 7. Explain the factors affecting supply of a, commodity., OR, Explain the determinants of supply., Answer- (a) Price of the commodity: Positive, relationship exists between price of the commodity and, supply of that commodity.It means, with the rise in price, of the commodity, the supply of commodity rises and, with fall in price , the supply of commodity falls., (b) Price of the factors of production: This also, influences the supply since price of factors (rent, wage,, etc) constitutes the cost of production of a commodity., Rise in the prices of factors of production may lead to, fall in revenue of the firm and hence there is decrease in, supply and fall in the prices of factors of production will, lead to rise in revenue of the firm which results in, increase in supply., (c) State of technology: When there is technological, progress in the firm, then cost of production will, decrease, which leads to increase in the profit margin of, the firm and hence supply of the commodity increases., Supply of those goods which are being produced with, old and inferior technology causing increase in cost of, production will decrease the supply of the commodity.
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., , (d) Price of other goods: Suppose a firm produces, more than one product with its given resources., An increase in the price of other goods induces the firm, to produce more of other goods to earn more profit and, less of goods whose prices remain unchanged., (e) Objective of the firm: A sales maximizing firm may, be induced to increase supply of a commodity not, because it is more profitable, but because its supply is a, source of status and prestige in the market. So supply, will be more irrespective of any change in prices of the, commodity. Where as, If a firm aims at profit maximization , then it may, increase supply only when the prices of Commodities, are high in the market and vice-versa., (f) Transportation - If good transportation facilities are, available then supply will be more and when good, transportation facilities are not available , then supply, will be less., 8. Explain expansion in supply with the help of a, diagram., Answer- It refers to the situation when quantity, supplied of a commodity rises due to the rise in price of, the commodity, other factors being constant. There is, upward movement in supply curve due to expansion in, supply which is shown in the diagram below:
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., , 9. Explain contraction in supply with the help of a, diagram., Answer- It refers to the situation when quantity supplied, of a commodity falls due to the fall in price of the, commodity, other factors being constant. There is, downward movement in supply curve due to contraction, in supply which is shown in the diagram below:
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., , 10. Explain with the help of diagram:, (a) Increase in supply, (b) Decrease in supply
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., , Answer- (a) Increase in supply - It is the situation, when supply of a commodity rises due other factors,, price remaining constant., Here supply curve shifts rightward as shown in the, diagram below:
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., , (b) Decrease in supply - It is the situation when supply, of a commodity falls due other factors, price remaining, constant., Here supply curve shifts leftward as shown in the, diagram below:
