Equilibrium refers to a state of rest when no change is required. Like a consumer, a producer also aims to maximize his satisfaction to attain equilibrium. But a producer’s satisfaction is maximized in terms of profits. Let us see how a producer reaches equilibrium.
Economics Class 12
Revenue Curves under Monopoly and Monopolistic Competition
Monopoly and monopolistic competition are imperfect competition market situations. In Imperfect Competition the price does not remain constant. In monopoly and monopolistic competition, price falls with rise in output. Let us see how the revenue curves behave in these situations.
[Read more…] about Revenue Curves under Monopoly and Monopolistic Competition
Revenue Curves under Perfect competition
The revenue curve of a firm is majorly represented by the Average Revenue and Marginal Revenue curves of a firm. These curves show the behaviour of the revenue of a firm. Let us see how the revenue curve of a firm behaves under perfect competition
What is Revenue?
Revenue is the amount of money that a producer receives for his commodity. It is very important for us to understand the concept of commodity and how it works.
What is Revenue?
The amount of money that a producer gets in exchange for the sale proceeds is known as revenue. Revenue refers to the amount received by a firm from the sale of a given commodity in the market. For example, a firm gets Rs. 16,000 from the sale of 100 chairs, then the amount of Rs. 16,000 is known as revenue.
The concept consists of three terms – Total Revenue, Average Revenue and Marginal Revenue.
Supply Curve
The supply schedule shows the combinations of different quantities of a commodity that a producer is willing to sell at different levels of price. The graphical representation of a supply schedule is known as a Supply Curve.
Price Elasticity of Supply
Price Elasticity of Supply – Background
We know that there is a change in the quantity supplied of a commodity, due to a change in its price. However, the extent of change , that would take place in the quantity supplied, due a given change in the price of the commodity , is determined by the price elasticity of supply of that commodity.
Shift in Supply Curve
The changes in a supply curve can occur due to various factors. One of these changes is known as the shift in supply curve. Let us see what is meant by shift in supply curve.
Shift in Supply Curve
A supply curve is drawn to show the relationship between price and quantity supplied of a commodity assuming all other factors being constant. Although in reality, these factors do not always remain constant and are bound to change at some point. This change in other factors, i.e. factors other the the price of the commodity, cause a shift in the supply curve.
For example, an increase in excise duty on a commodity will raise its cost of production which will lead to a fall in profit thus causing a decrease in the supply of the commodity even though its market price has not undergone any change. Such a decrease in supply cannot be represented by the original supply curve. It will lead to a shift in supply curve.
When supply of a commodity changes due to change in any factor other than the own price of the commodity, it is known as ‘change in supply’. It is graphically represented by a shift in the supply curve.
In the diagram given above, supply is OQ at the price OP. Change in other factors leads to a rightward or leftward shift in the supply curve –
- Rightward Shift – When supply rises from OQ to OQ1 at the same price OP, it leads to a rightward shift in the supply curve from SS to S1S1.
- Leftward Shift – When supply decreases from OQ to OQ2 at the same price of OP, it causes a leftward shiftin the supply curve from SS to S2S2.
Increase in Supply
Increase in supply refers to a rise in the supply of a commodity caused due to any other factor than the own price of the commodity. In such a scenario, the supply may rise at the same price or it may even stay the same at a lower price.
| Price (in Rs.) | Supply (in units) |
| 20 | 100 |
| 20 | 150 |
As seen in the diagram and schedule given above, even though the price remains the same, the supply rises from 100 to 150 units, resulting in a rightward shift in the supply curve from SS to S1S1.
Decrease in Supply
Decrease in supply refers to a fall in the supply of a commodity caused due to any other factor than the own price of the commodity. In this case supply may fall at the same price or may even remain the same at a higher price.
| Price (in Rs.) | Supply (in units) |
| 20 | 100 |
| 20 | 70 |
As seen in the diagram and the table given above, even though the price of the commodity remains the same, the supply of the commodity decreases from 100 to 70 units, resulting in a leftward shift from SS to S2S2.
Microeconomics Class 12 Notes – Chapter 11
- Concept of supply
- Supply Schedule
- Supply Curve
- Determinants of Supply
- Law of Supply
- Movement along the supply curve
- Price Elasticity of Supply
Practice Thousands of Free MCQs of Economics Class 12
Movement along the Supply Curve
When a supply curve is considered, there may be many changes in the curve due to the respective changes in the market prices and other factors effecting the supply of a commodity. One of such changes seen in the supply curve is seen as movement along the supply curve.
Movement along the Supply Curve
When the quantity supplied of a commodity changes due to change in its own price, keeping other factors constant, it is known as ‘change in quantity supplied’. It is graphically represented as a movement along the same supply curve.
There can be either a downward movement, i.e. contraction in supply, or an upward movement,i.e. expansion in supply.
In the figure given above, OQ is the quantity supplied at the price OP. Change in price either leads to an upward or a downward movement along the same supply curve –
- Upward movement – When price rises to OP1, quantity supplied also rises to OQ1, leading to an upward movement from A to B along the same supply curve SS.
- Downward movement – On the other hand, fall in price from OP to OP2, leads to decrease in quantity supplied from OQ to OQ2, resulting in a downward movement from A to C along the same supply curve.
Before we go on to understand other concepts regarding the effects on the supply curve due to various factors, it is important to understand the difference between Change in Quantity Supplied of a commodity and Change in Supply.
Change in Quantity Supplied vs Change in Supply
Whenever supply for the given commodity changes due to change in its own price, then such change in supply is known as ‘Change in Quantity Supplied’. Whereas when the supply for a commodity changes due to factors other than price, it is known as ‘Change in Supply’.
Expansion in Supply
Expansion in supply refers to a rise in the quantity supplied due to increase in the price of the commodity, other factors remaining constant. It leads to an upward movement along the same supply curve. Extension in supply is also known as ‘Increase in Quantity Supplied’.
| Price (in Rs.) | Quantity (in units) |
| 20 | 100 |
| 25 | 150 |
As seen in the diagram given above, when the price of the commodity rises from Rs. 20 to Rs. 25, the quantity supplied of a commodity increases from 100 to 150 units, resulting in an upward movement from A to B, along the same supply curve SS.
Contraction in Supply
Contraction in supply refers to a fall in the quantity supplied due to decrease in price of the commodity, other factors remaining constant. It leads to a downward movement along the same supply curve. It is also known as ‘Decrease in Quantity Supplied’.
| Price (in Rs.) | Quantity (in units) |
| 20 | 100 |
| 15 | 70 |
As seen in the diagram given above, as the price of the commodity falls from Rs. 100 to Rs. 70, the quantity supplied of the commodity also falls from 100 to 70 units, resulting in a downwards movement from A to B along the same supply curve SS.
Microeconomics Class 12 Notes – Chapter 11
- Concept of supply
- Supply Schedule
- Supply Curve
- Determinants of Supply
- Law of Supply
- Shift in Supply Curve
- Price Elasticity of Supply
Practice Thousands of Free MCQs of Economics Class 12
Law of Supply
Various economists have extensively studied the behavior of sellers and producers and firms. As a result they arrived at a generalization of their behavior called the Law of Supply.
Law of Supply
Law of supply states that there is a direct relationship between price and quantity supplied of the commodity, keeping other factors constant i.e. ceterus paribus.
We know that price is a dominant factor in determining the supply of a commodity. As price of the commodity increases, there is more supply of that commodity in the market and vice versa. This behavior is studied under the law of supply.
Assumptions
While stating the law of supply, the phrase ‘keeping other factors constant’ or ‘ceterus paribus’ are used. This phrase is used to cover the following assumptions on which the law is based.
- Price of other goods is constant.
- There is no change in the state of technology.
- Prices of factors of production remain the same.
- There is no change in taxation policy.
- Goals of the producer remain the same.
| Price (in Rs.) | Quantity (in units) |
| 1 | 10 |
| 2 | 20 |
| 3 | 30 |
| 4 | 40 |
| 5 | 50 |
The above given graph and table clearly show that more and more units of a commodity are being offered for sale as the price of the commodity is increased. The supply curve SS slopes upwards from left to right, indicating a direct relationship between price and quantity supplied.
Features of Law of Supply
- It states the positive relationship between the price of a commodity and its supply assuming that there are no changes in other factors.
- The law of supply is a qualitative statement. It does not say anything about the quantity of increase in the supply of the commodity with a certain increase in price. It does not indicate the magnitude of change.
- It also does establish any proportional relationship between the price of the commodity and its supply.
- The law states a single sided approach where it talks about the change in supply due to the change in price but does not say anything about the change in price due to the change in supply.
Exceptions to the Law of Supply
As a general rule, the supply curve slopes upwards showing that the quantity supplied rises with a rise in price. However, in certain cases,positive relationships between supply and price may not hold true. The various exceptions to the law of supply are –
- Future Expectation – If sellers expect a fall in price in the future, then the law of supply may not hold true. In this situation the sellers will be willing to sell even more a a lower price since they expect the price to fall even further therefore increasing their losses.
- Agricultural Goods – The sale of agricultural goods are not subject to the law of supply since their production depends on climatic condition. Also, these are perishable goods and need to be sold in a certain time period after which they will have no value. Therefore their supply might increase even at a lower price.
- Rare articles – Rare, artistic and precious articles are also outside the scope of the law of supply. For example, supply of rare articles like painting of Mona Lisa cannot be increases even if the prices are increased.
- Backward Countries – In economically backward countries, production and supply cannot be increased with increase in prices due to shortage of resources.
Microeconomics Class 12 Notes – Chapter 11
- Concept of supply
- Supply Schedule
- Supply Curve
- Determinants of Supply
- Movement along the supply curve
- Shift in Supply Curve
- Price Elasticity of Supply
Practice Thousands of Free MCQs of Economics Class 12
Determinants of Supply
There are several important factors that are the determinants of the supply of a commodity. A change in any of these factors will largely result in a change in the supply of the commodity.
Determinants of Supply
1. Price of the given commodity
The most important factor in determining the supply of a commodity is its price. As a general rule, the price of a commodity and the supply of the commodity are directly related. This means that as the price of the commodity increases, its supply will also increase and vice versa. This occurs as higher profits can be made at higher prices, therefore it compels the firm to offer a higher quantity of goods.
2. Prices of Other goods
We know that resources have alternate uses. Therefore, the quantity of a commodity that is supplied depends not only on its price but also on the prices of other commodities. If the price of another commodity increases, it becomes more profitable than the given commodity. As a result, the firm shifts its limited resources to the production of other goods rather than the given commodity.
3. Prices of factors of production
When or the amount to be payed to the factors of production increases, the cost of production of the commodity also increases. As a result, the profitability of the commodity decreases, and thus the seller reduces the supply of the commodity. Similarly if the prices of factors of decrease, the profitability of the commodity increases and the seller increases the supply of the commodity.
4. State of Technology
The state or level of technology also influences the supply of the commodity in the market. Advanced technology allows the producer to produce the commodity at a lower cost of production thus increasing its profitability. As a result the supply of the commodity is increased. However, technological degradation or complex and outdated technology will increase the cost of production and will lead to decrease in supply.
5. Government Policy
The government’s taxation policy has effect on the quantity of commodity supplied. Increased taxes raise the cost of production thus reducing the supply of the commodity due to lower profit margin. Whereas, tax concessions and subsidies cause an increase in the supply of the commodity as they make it more profitable for the firms to supply goods.
6. Goals of the firm
Usually, the goal or objective of a firm is profit maximization and because of that the supply of a commodity increases only at higher prices. But, with change in trend, some firms are willing to supply more at the same prices which do not maximize profits. The objective of such firms is to capture extensive markets and to enhance their status and brand name.
Determinants of Market Supply
The determinants of supply given above apply to both individual and market supply. Apart from the determinants of supply given above, market supply has some other factors determining the quantity of commodity supplied.
1. Number of firms in the market
When the number of firms in the industry increases, market supply also increases due to large number of producers producing that commodity. However, market supply will decrease if some of the producers start leaving due to losses.
2. Future expectations regarding price
If sellers expect a rise in price in the near future, the current market supply will decrease so that the supply can be increased when the prices are high. On the other hand, if the sellers fear that the price will fall in the near future, they will increase the supply of the commodity to avoid losses in the future.
3. Means of transportation and communication
Proper infrastructural development like improvement in the means of transportation and communication help in maintaining adequate supply of the commodity.
Microeconomics Class 12 Notes – Chapter 11
- Concept of supply
- Supply Schedule
- Supply Curve
- Law of Supply
- Movement along the supply curve
- Shift in Supply Curve
- Price Elasticity of Supply
Practice Thousands of Free MCQs of Economics Class 12
Supply Schedule
Supply is the quantity of a commodity that a producer is willing and able to offer for sale at a given price during a given period of time. The quantity of a commodity being supplied by a firm can be represented in many ways, one of these is a supply schedule.
Supply Schedule
Supply schedule is a tabular statement showing number of units of a commodity being supplied at various levels of price, during a given period of time. There are two types of supply schedules –
- Individual
- Market
Individual Supply Schedule
Individual supply schedules refer to a tabular statement showing various quantities of a commodity that a producer is willing to sell at various levels of price, during a given period of time.
| Price (in Rs.) | Quantity supplied of Good X |
| 1 | 5 |
| 2 | 10 |
| 3 | 15 |
| 4 | 20 |
| 5 | 25 |
As seen in the schedule given above, quantity supplied of commodity X increases with increase in price. The firm is willing to offer for sale 5 units of X at a price of Rs. 1. When the price rises to Rs. 2, supply also rises to 10 units.
Market Supply Schedule
Market supply schedule refers to a tabular statement showing various amounts of a commodity that all the producers are willing to offer for sale at various levels of price, during a given period of time. It is obtained by adding all the individual supplies at each and every level of price.
Market supply can be expressed as –
Sm=SA+SB…
Where Sm is the market supply and SA+SB… are the individual supply of supplier A, supplier B and so on.
| Price (in Rs.) | Individual Supply (units) | Market Supply (units)
(SA+SB) |
|
| SA | SB | ||
| 1 | 5 | 10 | 5+10 = 15 |
| 2 | 10 | 20 | 10+20 = 30 |
| 3 | 15 | 25 | 15+25 = 40 |
| 4 | 20 | 35 | 20+35 = 55 |
| 5 | 25 | 40 | 25+40 = 65 |
As we can see in the table given above, market supply is obtained by adding the supplies of suppliers A and B at different prices. At price of Rs. 1, market supply is 15 units. When price rises to Rs. 2, market supply rises to 30 units, So, it also shows a direct relationship between price and quantity supplied.
Microeconomics Class 12 Notes – Chapter 11
- Concept of supply
- Supply Curve
- Determinants of Supply
- Law of Supply
- Movement along the supply curve
- Shift in Supply Curve
- Price Elasticity of Supply
Practice Thousands of Free MCQs of Economics Class 12
Concept of Supply
Similar to demand, the concept of supply also is expressed as a relationship between price and quantity. Supply is a basic economic phenomenon that describes the total amount of a specific good or service that is available to consumers.
Concept of Supply
Supply refers to the quantity of a commodity that a firm is willing to offer for sale at a given price during a given period of time. The definition of supply highlights its four essential elements – quantity of a commodity, willingness to sell, price of the commodity and the period of time. Supply can be either for a single seller or for all the seller i.e. Individual Supply or Market supply.
Individual Supply refers to the quantity of a commodity that an individual firm is willing to offer for sale at a given price during a given period of time. Whereas, market supply refers to a quantity of a commodity that all the firms are willing to offer for sale at the given price during a given period of time.
Features of Supply
- The concept of supply is a desired quantity. It indicates only the willingness i.e. how much the firm is willing to sell and not how it actually sells.
- Supply of a commodity does not comprise the entire stock of the commodity. It indicates the quantity that the firm is willing to bring into the market at a particular price.
- Supply is always expressed with reference to price. The supply of a commodity is always at a price because with a change in price the quantity supplied may also change.
- Supply is always with respect to a period of time. The quantity of the commodity which the firm is willing to supply during a specific period of time.
Concept of Supply and Stock
The concept of supply is often confused with stock of the commodity. However, these terms have different meanings in economics. Stock is the total quantity of the commodity that is held by the firm at a particular point of time. On the other hand, supply is that portion of the stock of the commodity that the producer is willing to bring to the market for sale. Stock can never be less than supply. For example, if a seller has 50 tonnes sugar in his warehouse and he is willing to sell 30 tonnes @ rs. 37/kg, then the supply is 30 tonnes and the stock is 50 tonnes.
The concept of supply in economics is complex and has many mathematical formulas, practical applications and various factors affecting supply. Supply can refer to anything in demand that is sold in a competitive marketplace, but supply is most used to refer to goods, services, or labor.
Microeconomics Class 12 Notes – Chapter 11
- Supply Schedule
- Supply Curve
- Determinants of Supply
- Law of Supply
- Movement along the supply curve
- Shift in Supply Curve
- Price Elasticity of Supply
