EE&FA - LAW OF SUPPLY - FINAL YEAR CS/IT - SRI SAIRAM INSTITUTE

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EE&FA - LAW OF SUPPLY - FINAL YEAR CS/IT - SRI SAIRAM INSTITUTE OF TECHNOLOGY - DR.K.BARANIDHARAN

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Dr.K.Baranidharan Present by…

MankiwCanChp2Ed2:

Engineering Economics & Financial Accounting E e & f a 2 18 August 2013

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LAW OF SUPPLY

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Law of Supply Law of Supply- refers to the relationship between price and the quantity of a good or service that firms are willing to produce. The higher the price of the product leads to more supplies and more companies making the product. Price As price increases… Supply Quantity supplied increases Price As price falls… Supply Quantity supplied falls

Dr.K.Baranidharan:

Faculty of Business and Economics (FBE), The IIPM, New Delhi SUPPLY Quantity Supplied refers to the amount (quantity) of a good that sellers are willing to make available for sale at alternative prices for a given period.

Engineering Economics & Financial Accounting:

Faculty of Business and Economics (FBE), The IIPM, New Delhi Price Law of Supply The law of supply states that, other things equal, the quantity supplied of a good rises when the price of the good rises.

LAW OF SUPPLY:

Faculty of Business and Economics (FBE), The IIPM, New Delhi The Supply Schedule and the Supply Curve The supply schedule is a table that shows the relationship between the price of the good and the quantity supplied . The supply curve is a graph of the relationship between the price of a good and the quantity supplied. “ Other thing being equal”

Law of Supply:

Faculty of Business and Economics (FBE), The IIPM, New Delhi Table 4-4: Ben’s Supply Schedule 5 3.00 4 2.50 3 2.00 2 1.50 1 1.00 0 0.50 0 0.00 Quantity of cones Supplied Price of Ice-cream Cone ($)

SUPPLY:

Faculty of Business and Economics (FBE), The IIPM, New Delhi Price of Ice-Cream Cone Quantity of Ice-Cream Cones 6 8 10 12 0 2 1.50 1.00 1 2.00 3 4 $3.00 2.50 5 0.50 Figure 4-5 : Ben’s Supply Curve

Price:

Elasticity of supply The degree of responsiveness of the quantity of a commodity applied for a small change in its price. Faculty of Business and Economics (FBE), The IIPM, New Delhi    

The Supply Schedule and the Supply Curve:

Types of elasticity A)perfect elasticity or infinite elasticity of supply ( E s = ∞) Any quantity can be supplied it a given price and there is no need to increase the price On the other hand the firm can even stop the supply completely. But this situation is not found in the real world and is only a hypothetical case. Curve: the shape of the line is horizontal and parallel to the x-axis Faculty of Business and Economics (FBE), The IIPM, New Delhi

Table 4-4: Ben’s Supply Schedule:

Perfectly elasticity or infinite elasticity of supply Faculty of Business and Economics (FBE), The IIPM, New Delhi Quantity supplied O X Y p

Figure 4-5: Ben’s Supply Curve:

B) perfectly inelasticity supply (( E s = 0) Supply remain constant irrespective of the changes in price. Other words the firm is completely insensitive to the price change. Curve; the shape of the supply curve is a vertical line parallel to the y - axis Faculty of Business and Economics (FBE), The IIPM, New Delhi

Elasticity of supply:

PERFECTLY ELASTICITY OF SUPPLY Faculty of Business and Economics (FBE), The IIPM, New Delhi price O X Y Quantity supplied Q

Types of elasticity:

UNITY ELASTICITY ( ( E s = 1) The percentage change in quantity supplied is equal to the percentage change in price Faculty of Business and Economics (FBE), The IIPM, New Delhi

Perfectly elasticity or infinite elasticity of supply:

Unit elasticity E s = 1 Faculty of Business and Economics (FBE), The IIPM, New Delhi price O X Y Quantity supplied S

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RELATIVELY ELASTIC (( E s ► 1 ) The elasticity of supply is greater than 1 the supply is said to be elastic. If the price increase by 10% the supply increase by more than 10% Conversely, if the price falls by 10% the supply falls by more than 10% Faculty of Business and Economics (FBE), The IIPM, New Delhi

PERFECTLY ELASTICITY OF SUPPLY :

E s ► 1 Faculty of Business and Economics (FBE), The IIPM, New Delhi price O X Y Quantity supplied

UNITY ELASTICITY ((Es = 1):

RELATIVELY INELASTICITY SUPPLY ( E s ◄ 1) The % change in quantity supplied is less than % change in price. Supply is said to be inelasticity. Faculty of Business and Economics (FBE), The IIPM, New Delhi

Unit elasticity:

RELATIVELY INELASTIC SUPPLY E s ◄ 1 Faculty of Business and Economics (FBE), The IIPM, New Delhi price O X Y Quantity supplied

RELATIVELY ELASTIC ((Es ► 1):

Dr.K.Baranidharan THANK YOU

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