CBSE Class 12 Economics Producers Behaviour and Supply

PRODUCER’S BEHAVIOUR AND SUPPLY
Meaning of supply
Supply means the quantity of a commodity which a firm or an industry is willing to produce at a particular price, during a given time period.

Law of supply

This law states that 'other things remaining the same', an increase in the price of a commodity leads to an increase in its quantity supplied. Thus, more of a commodity is supplied at higher prices than at lower prices.

This law can be explained with the help of a supply schedule and curve.

A supply schedule is a table which shows the quantities of a commodity supplied at various prices during a given time period.

As the price increases from Re. 1 to Rs. 3, the supply also rises from 100 units to 300 units, in response to the rising price. What is the basis of the law of  upply? Other things remainingthe same, an increase in price results in higher profits for the producer. The higher the price of the commodity, the greater are the profits earned by the firms and the greater is the incentive to produce more. Similarly when the price falls, profits decline, resulting in a decrease in quantity supplied of the commodity. Thus the price and quantity supplied of a commodity are directly related, other things remaining the same.

‘Change in supply’ versus ‘change in quantity supplied’

(‘shift of supply curve’ versus ‘movement along a supply curve’)

The supply of a commodity depends on its own price and 'other factors' like input prices, technique of production, prices of other goods, goals of the firm, taxes on the commodity etc.

Movement along a supply curve

The law of supply states the effect of a change in the own price of a commodity on its supply, other things remaining constant. The supply curve also carries the same assumption. Thus whenot her factors influencing supply do not change, and only the own price of the commodity changes, the

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