Hello everyone. In this video introduces
you to the concept of supply. Before we understand supply, supply comes from the seller okay. So in addition to
supply we also measure quantity supplied. We need to differentiate both of them.
Quantity supplied means if you know the price, at that given
price how much a producer is willing to sell or willing
to produce. That's what we call quantity supplied.
That means one single quantity. Whereas supply is, it's an economic
model. We keep everything else constant, in that case at different prices uh what
are the quantities producer or seller is willing to sell.
That combinations represent as supply. That means supply is not a single number...
it is represented by supply curve. Whenever whenever you are taking a
supply curve, that means that is basically telling
what it's supposed to be supply. So how do we show this? Basically,
we take quantity supplied on the horizontal axis
price on the vertical axis. As price increases
quantity supplied also increases. That means supply curve is essentially upward sloping curve. On this supply curve every single point
represents a quantity supplied. That means you can see
quantity supplied here at a given price. If you know the price
that means you can figure it out what should be the quantity supplied.
As you move along this curve you will see different prices
and different quantities supplied. Now there are some
misconceptions or misinterpretations about supply. Let's understand those.
Supply, as I said, is an economic model. it should have price and quantities
supplied as variables. So it's wrong to say when the price
increases supply increases. Instead what we want to say is when
price increases quantity supplied increases. The price
change we move from one point to another point on
the same supply curve without any change in the supply. Now the law of
supply. Law of supply means basically
price and quantity supplied are positively related okay or directly
related. In other words, supply curve is upward
sloping. within the supply, we show it two types:
one is individual supply, second is market supply.
Individual supply means if you take one producer
at different prices what are the quantities that single producer wants to
produce. Whereas market supply that means all the
producers in the market together what are the quantities they
will produce at different prices. So individual supply
if you take price as you can see as the price changes
quantity supplied is changing. If you show them in terms of the graph
that's what gives us supply curve. Change in quantity supplied is movement
along the supply curve. That means the reason here is
simply change in the price. Whereas change in supply
that means an entire shift in the supply curve.
When you say shift in the supply curve the reason comes something
other than the price is actually changing.
The way we try to show it is we show quantity supplied here price here the
supply curve is something like this. Moving towards the right this is what we
called increase. Don't take it upwards okay. So that's
wrong to say. Moving towards left you're basically saying that's a
decrease okay. So going towards right is increase,
going towards left is decrease. Why we choose that way
because at different prices we're seeing more quantities being purchased
sorry produced. That's what we show it as uh increase in the supply. Another way of
showing the same concept here if you see on s1
moving from one point to other point is change in quantity supplied.
if you're moving from s1 to s2 or s1 to s3
that is basically change in supply. Going to s2 is increase going to s3
is a decrease in supply. we want to understand what are the reasons for
change in supply or what is causing shift in the supply
curve okay. So first one, we have to look at is change
in the prices of the resources. okay. So when price of resources
increases, cost of production increases, that will have a negative effect on the
supply. That means it basically causes shift to the left. Second thing is
advances in production technology. If production technology improves able
to produce at a lower cost causes the supply to actually
increase as well. Taxes and subsidies in production. Taxes will have negative effect on the supply causing it to shift to the left.
Whereas subsidies will have positive effect on the supply.
Fourth one is number of sellers. More sellers in the market
that means higher the supply. Fifth one producers expectation about the future
prices. If producers expect in the future the
prices are going to increase, that means they withheld the quantity
causing current supply to decrease and of course vice versa. If producers
expect future price are going to drop, they may dump all the quantity today
causing the supply actually to increase. Next thing is same as in our
demand side. in the supply side or production side
also we have related goods in production. When we call
substitutes in production, that means you're using the same
resources to produce two different goods. That means if you
have a piece of land you can either produce wheat
or you can produce corn. If you're producing wheat that means is you are
giving up the production of the corn. So if price of one good increases, you
start producing more of that good. That causes decrease in the supply of
the other good and vice versa. Next thing is complements
in production. We call them as byproducts. That means
you're producing one good, the other good actually comes as a byproduct
okay. So you're not using any additional resource your
good or second good is coming essentially as free. in this case if
price of one good increases, the supply of other good automatically
increases because you start producing more of the first
good given the supply curve is upward sloping causing the production of other good
to increase as well.