stock supply

8/11/2019 Stock Supply

1/8

STOCK SUPPLY

17. STOCK SUPPLY

Meaning

Stock refers to entire quantity of acommodity which is in the custody

of the seller. So it is the potential

supply.

Dependence

Stock depends on production.

Relationship

Stock can be greater than the

supply.

(a) For perishable commodities thestock and the supply can be the

same.

(b) For durables commodities, the

stock can be more than the supply.

Order of existence

Stock comes before supply

Supply refers to the quantity of acommodity offered for sale at a

given price and at a given timeand place.

Supply depends on stock and

price.

Supply cannot be greater than

the stock.

(a)Supply is either equal or lessthan the stock.

Supply follow stock there cannot

be supply without stock.

Meaning: -The law of supply establishes a functionalrelationship between the price of a commodity and its

quantity supplied in the market.

Definition: -According to Marshall the law of supply isdefined asOther thing being equal, the quantity of acommodity supplied is directly related to its price In other words, more quantity of a commodity is offeredfor sale at a higher price and less quantity is offered for

sale at a lower price. So supply of a commodity isdirectly related to its price.


2/8

Symbolically it can be stated as follows:

Sx = f (Px)

Where, S stands for supply, f stands for function of, Pstands for Price, x stands for a given commodity.

THE LAW CAN BE EXPLAINED WITH THE HELP OF SUPPLYSCHEDULE AND A DIAGRAM.

SUPPLY SCHEDULE

PRICE (RS.) QUANTITY SUPPLY (INKGS)

1

2

3

4

5

10

20

30

40

50

The schedule shows that with an increase in price thequantity supplied is also increasing. It indicates directrelationship between the two variables Price andquantity supplied. When the price is Re. 1 the selleroffers only 10 units for sale. When Price increasesto Rs.5he expands supply to 50 units.


3/8

In the above diagramX-axis represents quantity supplied and Y-axisrepresents price. Various points from the schedule areplotted on the graph join those points we will be gettingsupply curve which is called as named as SS. SS slopedupward from left to right showing direct relationshipbetween price and quantity supplied. This happens

when price is more, supply is also more and when priceis less, and supply is also less.

ASSUMPTIONS TO THE LAW OF SUPPLY

The law of supply states that Other thing being equal, the quantity of a

commodity supplied is directly related to its

price.Therefore, the law of supply is based on thefollowing assumption.
http://2.bp.blogspot.com/-p_BOH_GwBVg/Uu3-fRyHj_I/AAAAAAAAW8A/_xuuocQ5GE4/s1600/ECO1.png


4/8

1. The price of substitutes remains unchanged: -The law of supply assumes that the price of substitutescommodities remains unchanged. If the price of

substitute commodities changes, then the law of supplywill not apply.

2. There is no change in cost of production: - It isassumed that there is no change in the cost ofproduction. If there is a change in the cost of production,it may affect the price of the commodity and its supply.

3. There is no change in the technology and

method of production: It is assumed that there is nochange in the technology and method of production. Ifthere are some changes in the technology and methodof production, they may affect the cost of production,price and supply of the commodity.

4. Government policies on taxation remainunchanged: it is also assumed that the government

policies on taxation, especially sales tax, excise duties,customs duties, etc. remain unchanged. A change intaxes will affect the price of the commodities and theirsupply.

5. Weather and climatic conditions remainunchanged: -It is assumed that the weather andclimatic condition remain unchanged. For instance,

natural calamities such as flood, drought, cyclone, earthquakes etc. adversely affect the supply of commodities,especially agricultural commodities.

6. Transport cost remains unchanged: It is alsoassumed that the transport cost remains unchanged.Transport network is not affected by strikes or hike inpetrol and diesel prices. A change in transport cost

affects the price of the commodities and their supply.


5/8

7. No change in promotional activities: -It isassumed that the promotional activities of the producersand sellers such as advertising and other sales

promotions activities remain constant.

EXCEPTIONS TO THE LAW OF SUPPLY

1. Anticipation about future price: -If the sellers anticipate

a future rise in price, they may withhold the supply with aview to earn more profits in the future. Even if the price is

high, sellers are not ready to release the goods in anticipation

of further rise in price, expecting to make huge profits.

2. Labour Supply: -Workers normally prefer leisure after

reaching certain amount of wage level. Therefore, afterreaching that high level of wages, the labour supply will

decline, even if they are offered more wages so, the supply of

labour becomes a backward bending curve, indicating that

initially the supply of labour is directly related to wage, but

after a particular limit of wag level, the supply of labourbecomes inversely related to wage.


6/8

3. Need for urgent funds: A businessman may face an

urgent need for funds, and as such he may sell out more goodseven at lower prices. This is an exception to the law of supply

4. Change in Fashion: If some goods become out of fashion,

the sellers may sell such goods at a throw away prices to clear

off these goods. This is also an exception to the law of supply.5. Perishable goods: the sellers have to dispose of the

perishable goods like meat, fish, fruits, flowers etc., even if

the price falls. They can not wait for longer time for the priceto rise, in order to increase supply.6. Period of recession: - During recession period the sellers

are forced to sell the goods are low prices. This is becauseduring recession, the purchasing power of the people is very

low.

EXPLAIN THE RELATIONSHIP BETWEEN TOTAL UTILITY

AND MARGINAL UTILITY
http://2.bp.blogspot.com/-ft2oMevXolI/Uu4AHM3PbHI/AAAAAAAAW8M/s_j7oZ2_-4A/s1600/ECO1.pnghttp://www.blogger.com/share-post.g?blogID=1642103494435206502&postID=397072611009814456&target=email


7/8

Total utility is the sum of all utilities derived by aconsumer form all units of commodity consumed by him.Whereas Marginal utility is the addition to the total utilityderived by consuming an extra or additional unit of acommodity. In other words, marginal utility derived fromthe consumption of an additional or extra unit of acommodity.

The following illustration of a schedule and a diagramexplain the relationship between total utility and Marginal

utility. Let us assume that an individual consumer Mr.Xfound of mangoes and start consuming unit ofmangoes in quick successive unit of mangoes.

Units of

mangoes

Total Utility

(T.U)

Marginal

Utility(M.U)

1

23

4

5

6

7

10

1824

28

30

30

28

10

86

4

2

0

-2

DIAGRAM


8/8

With the help of the Schedule and Diagram wederives the following three conclusion

1. Mu goes on diminishing as the consumer consumesmore and more units of a commodity. And TU increases

but, at a diminishing rate.2. There is an inverse relationship between MU andstock of the commodity i.e. as the stock of thecommodity consumed increases, MU goes ondiminishing.

3. When MU is Zero, TU is the maximum and it is thepoint of maximum satisfaction. i.e., point of satiety.When Mu becomes negative, total utility starts diminishing.

This is the area of dissatisfaction.
http://3.bp.blogspot.com/-M4TC3BOOhnw/Uu39ts0IjHI/AAAAAAAAW74/ox6JzQb-YAw/s1600/ECO1.png

stock supply

Documents