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Monday, 2 May 2011

Distinguish between Stock and Supply and explain the law of supply



MEANING OF SUPPLY :- By supply we mean that quantity of commodity which is offered for sale at any particular price. Supply is always related to price without the reference of price supply can not be determined.

DISTINCTION BETWEEN STOCK AND SUPPLY

It is the total quantity of the commodity which is available at any specific time.
Supply is that part of stock which is offered sale at any time.
LAW OF SUPPLY :- " Other things remaining the same as the price of any commodity rises, its supply also rises and as price falls, its supply also falls. "

SUPPLY SCHEDULE :- The supply schedule of sugar which is supplied in market at different prices per unit of time is given below :

Price per Kg in Dollar. Quantity supplied

15 5000
12 4000
9 3000
6 2000
3 1000

EXPLANATION :- In the above table, the producers are able and willing to offer 500o kg for sale at a price of 15 $. As the price falls, the quantity offered for sale decreases. At a price of 3 $ the supply offered for sale is 1000 kg.
EXPLANATION :- In the above diagram the quantity supplied is measured along "ox" and price along "oy" , "ss" is the supply curve which shows that more quantity is offered for sale at a higher price and less at a lower prices.

1. TECHNIQUES OF PRODUCTION DO NOT CHANGE :- Due to the improvement in the production techniques, cost of production decreases and supply increases even prices are low.

2. CLIMATIC SITUATION DOES NOT CHANGE :- The supply of agriculture product is directly affected by the weather conditions, so it may not change.

3. NO IMPROVEMENT IN THE MEANS OF TRANSPORT :- The supply of commodity may increase due to the improvement in the means of communication and transport.

4. POLITICAL CHANGES :- Due to political disturbance supply may increase or decrease in a country. Political unrest discourages the supply.

5. TAXATION POLICY DOES NOT CHANGES :- If government imposes heavy taxes then supply of goods can be decreased at each price.

6. FUTURE EXPECTATIONS :- If the firms expect higher profits in future, they will take the risk to produce goods on large scale.

7. NO CHANGE IN THE COST OF PRODUCTION :- If the prices of various factors of production fall down, it will result in increasing the supply on varying prices.

8. DISCOVERY OF NEW RESOURCES :- The discoveries and better utilization of resources makes this law in-operative.

9. PERISHABLE GOODS :- Hoarding of destroyable goods is very difficult, so there is no effect of price on the supply of such commodities.

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