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The functiun thai specifies a functional (mathematical) relationship between supply of a good and its determinants i.e. factors affecting the supply is supply function.

S_x = f (P_x, T, P_f, P_e, U)

“When all other factors affecting supply are assumed to be constant, as price increases, supply expands and as price decreases, supply contracts”.

Level of technology:

• When technology advances, time and efforts are saved. Hence, goods in large quantities and better quality can be produced that too with the same or lower costs.
• To add to this, if market price does not fall then profits increase and sellers are willing to sell more. Thus, supply expands.

1. Prices of factors of production remain constant.
2. There is no change in the prevalent state of technology.

Supply curve slopes upward whereas demand curve slopes downward. The point at which both intersect is the point of equilibrium price.

Law of supply:
“When all other factors affecting supply are assumed to be constant, as price increases, supply expands and as price decreases, supply contracts”. The definition tells that there is a direct and positive relationship between price and supply. This relationship is called law of supply.

Assumptions of law of supply:

• Over and above time, several factors affect the supply of a good at a particular point of time. Flowever, at given point of time, the law of supply assumes the effect of all factors on supply other than the price as constant.
• In reality, other than price there are some other factors that can influence the supply more. However, we assume these to be constant.

Some important assumptions of law of supply:

• Prices of factors of production remain constant.
• There is no change in technology.
• Level of competition remains the same. In other words, number of sellers in the market remains the same.
• Expectations regarding future prices are ignored/held constant.
• Other factors like government policy, transport facilities, natural factors, etc. remain constant.

Production:
The quantity of goods created by the available factors of production during a fixed time period is called production

Supply:
The quantity of production which a producer is able and willing to sell in the market at a given price and at a particular point of time is called supply.

Stock:
The total available quantity of goods with a producer which can be offered for sale in the market as per the ability and willingness of the seller is called stock.

Correct option is (C) Demand curve intersects with supply curve

The process of determining what a company will receive in exchange for its product is called price determination. Price determination explains the process of determining a stable price at which goods are actually bought and sold in the market.

Correct option is (D) Stable

• In routine terms, the concepts of stock and supply are considered and / used as one and the same by people but, technically the two are different.
• Stock is the sum total of the available amount of a good whereas, supply is the stock which traders are able and willing to sell at a prevailing price at a particular point of time.
• Whenever the trader is unable and not willing to sell the entire available stock at a given price and a point of time, supply will not be considered equal to the stock.

Example:

• From an available stock of 500 packets, if the trader is able and willing to sell 300 packets then the supply of oil is 300 packets whereas the stock is 500 packets.
• Hence the available stock which determines the ability to sell is called stock. On the other hand, the ability and willingness to sell at a given price at a particular point of time is the supply.
• Hence, stock is the total amount of a product which is available for sale whereas supply is less than stock.
• Stock consists of current production as well as the unsold stocks from previous lot ot production.
• Thus, we can say that stock is different from production and supply.

Correct option is (D) Both (A) and (C)

Stock depends on production whereas supply depends on stock and price.

Price determination:

• The process of determining what a company will receive in exchange for its product is called price determination.
• Price determination explains the process of determining a stable price at which goods are actually bought and sold in the market.
• Such determination of prices is done in all forms of markets and is known as determination of equilibrium price level.

• s per the law of supply, as price increases, supply expands and as price decreases, supply contracts. This means there is a direct relationship between price and supply.
• When we plot the points of any direct relationship between two variables, we get an upward positively sloped curve.
• Hence, the supply curve is also positively sloped.

• Supply of a commodity can be equal to or less than the total stock plus production but not more than that.
• For example, during a year a firm produces 100 units. The past stock is 30 units. So, the total sellable stock becomes 130 units. This means that the seller can supply maximum 130 units but not more than that.
• Hence, the supply can be more than production but not more than the stock.

• There are two categories of goods namely rare goods and perishable goods which do not follow the law of supply i.e. they are exceptions to the law of supply.
• In case of rare goods, the rare goods are not produced on a daily basis. Hence, it will be incorrect to consider these goods as exceptions to the law of supply.
• In case of perishable goods, even if the price of perishable products falls their supply will not contract because they cannot be preserved and hence must be sold.
• Hence, looking to situation that both these categories of goods experience it is said that exceptions to the law of supply are only theoretical.

Supply function:

• The supply function specifies a functional (mathematical) relationship between supply of a good and its determinants i.e. factors affecting the supply.
• The supply function represents that the supply of one good is determined by many factors.

Mathematical form of the supply function:
S_x = f(P_x, T, P_f, P₀, U)
where S_x = Supply of commodity X
f = Functional notation
P_x = Price of commodity X
T = Level of technology
P_F = Factor prices
P_e = Expectations regarding future prices
U = Other factors

From an available stock of 500 packets, if the trader is able and willing to sell 300 packets then the supply of oil is 300 packets whereas the stock is 500 packets.

Correct option is (C) Stock

Stock:

• The total available quantity of goods with a producer which can be offered for sale in the market as per the ability and willingness of the seller is called stock.
• For example, a trader of oil in Rajkot has 500 packets of oil. This means the trader has 500 packets as stock if he is not able and willing to sell them in the market at a given price at a given point of time then supply is zero even with stock of 500. But, if he is able and willing to sell 300 packets from the available amount then the supply of oil is 300 packets.
• In other words, Stock = 500 packets of oil
  Supply = 300 packets at ₹ 100/packet.

Important concepts to understand meaning of stock:
(A) Willingness to sell:
The total quantity of a good available with a producer or trader is not called supply but is called stock. It will become supply only when he is able and willing to sell it at a given price at a particular point of time.

(B) Ability to sell:
Ability to sell depends upon the availability of stock. For example, if a trader of oil desires to sell 1,000 packets of oil while he has an available stock of only 500 packets then the ability to sell is only 500 packets. Thus, supply is 500 packets.

There are two reasons for positive relationship between price and supply. They are:

1. Sellers keep in mind the objective of profit maximization. So, when price rises they see the possibility of increasing profits. Thus, they supply more at a higher price.
2. When price rises, those producers who were not willing to sell their stocks at lower price start selling the stocks.

Law of supply:
“When all other factors affecting supply are assumed to be constant, as price increases, supply expands and as price decreases, supply contracts”. The definition tells that there is a direct and positive relationship between price and supply. This relationship is called law of supply.

Assumptions of law of supply:

• Over and above time, several factors affect the supply of a good at a particular point of time. However, at given point of time, the law of supply assumes the effect of all factors on supply other than the price as constant.
• In reality, other than price there are some other factors that can influence the supply more. However, we assume these to be constant.

Some important assumptions of law of supply:

• Prices of factors of production remain constant.
• There is no change in technology.
• Level of competition remains the same. In other words, number of sellers in the market remains the same.
• Expectations regarding future prices are ignored/held constant.
• Other factors like government policy, transport facilities, natural factors, etc. remain constant.

Correct option is (A) Supply ≠ stock

Correct option is (C) When price is lower, supply is more

A producer sells goods for earning profit. Irt order to earn higher profit, he supplies more goods when the price of a product rises and less when the price falls.

Factors that affect supply can be classified under two groups. They are:

1. Price of the good (product) and
2. Factors other than price.

1. Price of the good (product):

• Price is an important determinant of supply.
• A producer sells goods for earning profit. In order to earn higher profit, he supplies more goods when the price of a product rises and less when the price falls.
• Thus, there is a positive relationship between price of a good and its supply.

2. Factors other than price:
(A) Price of factors of production cost of production:
Change in cost of production affects its supply.

Example:

• When rent paid to the owner of land or wages paid to the labourer, decrease, the cost of production decreases.
• When cost of production decreases and if price remains unchanged, the profits increase. Hence, the seller is more willing to sell large quantity. Thus, supply expands when prices of factors of production fall.
• On the contrary, if cost of production rises, the situation becomes opposite and the supply contracts.

(B) Level of technology:

• When technology advances, time and efforts are saved. Hence, goods in large quantities and better quality can be produced that too with the same or lower costs.
• To add to this, if market price does not fall then profits increase and sellers are willing to sell more. Thus, supply expands.

(C) Future expectations about price:
If sellers speculate price of a product to rise in future then they contract the current demand so that they can build up stock for the future and vice, versa. Thus, future expectations about price affect the current supply of goods.

(D) Other factors:
Other factors that increase supply are:

• Increase in number of firms producing the product
• Existence of political stability in the state
• Favorable natural conditions
• Presence ,qf efficient law and order and legal systems
• Industrial relations are maintained well between owners and workers of production and marketigg activities, etc.
• On the other hand, supply decreases when the above factors become negative.

When cost of factors of production decrease, production becomes cheaper. If now price remains unchanged, the profit increases and so the seller wishes to sell more which in turn expands supply.

Correct option is (D) None of these