2.3 Supply Schedule, Function and Law
(A) Supply Schedule: Just as goods are demanded
by consumers, they are supplied by manufacturers or sellers. At any point
of time quantity supplied by them is a function of the market price.
Several such prices can be related to the relevant quantities supplied:
this would give the supply schedule. In the given schedule, as price of
the goods rises (from zero to 3) the quantity supplied also rises (from
zero to 6 units).
(B) Supply Function: Supply is a direct function
of the price and it rises or falls with the price. This is because the
law of supply is based on the behavior of the cost of production.
Assuming that manufacturers begin at the point where cost of production
is minimal any further production and supply of goods can be
possible only at an increasing additional or marginal cost per
unit. Hence they can afford to supply more only at a rising price.
Further, logically any seller would be willing to sell more goods if the
price were to rise. The quantity supplied at the given range of prices
as above can be presented in the form of an algebraic function:
qs = 2P
With the help of the function we can find the quantity
supplied at any randomly chosen prices. For instance, when P = 3, qs
= 6 or when P = 2, qs = 4 etc.
(C) Law of Supply: The law of supply can be stated
"Ceteris paribus, the quantity of a good
supplied will rise (expand) with every rise in its price and the
quantity of a good supplied will fall (contract) with every fall
in its price."
In a functional form this can be stated as :
= f (P) [T, R, P] const.
The quantity of a commodity supplied is thus a
function of its own price. There exists a direct relationship
between the quantity supplied and the price of a commodity. It is
subject to the condition that other things should remain constant. In
this case ‘other things’ include mainly two things. These are technical
conditions or methods of production (T) and the prices and
quantities of the resources supplied (RP). With improved
technical conditions, supply can be increased at the same old price, since
the cost of production can now be reduced. Similarly with an enhanced
supply of resources and a reduction in the prices of resources such as
land, labor, raw materials etc. an increasing quantity of the commodity
can be supplied at a constant or even falling price.
Figure 4 is the graphical representation (the supply
curve) of the supply schedule. It begins at the point of origin where
both quantity supplied and price are zero in value, and then it continuously
rises upwards. This upward sloping curve indicates the positive
relationship between supply and price: there is a rise in the quantity
supplied with every successive rise in the price.
(D) Expansion or contraction and increase or
decrease: Changes in the quantity supplied as a result of movement
along the same supply curve has been described by Marshall as rise
and fall or expansion and contraction of quantity supplied
of the commodity. But if the supply curve shifts left or right
of the original curve, the changes in supply of the good are known as
increase or decrease.
In figure 5 we notice such a shift in the supply curve.
On the original supply curve (OS) the quantity of goods supplied at price
OP is Oq but when the supply curve shifts towards its left (i.e.
S1 S1) then at the same price OP, the quantity supplied
decreases to Oq1. If we begin with S1 S1 as the original supply
curve, OS would represent a shift of the supply curve towards the right.
In this case, quantity supplied increases at a given price.
The supply curve undergoes a shift in it with a change in the technical
conditions or the price and supply conditions of the
inputs (resources). With improved techniques or methods of production,
the degree of the efficiency with which some or all resources can be utilized
will increase. This results in a favorable change in the cost
of production. Similarly with improved supplies and reduced prices
of the inputs, the cost of production tends to fall and an increased supply
of a commodity becomes possible at a given market price.