Supply¶

is the optimal quantity which sellers are willing and able to sell at a given price, in a particular period

Law of Supply¶

Assuming that factors are same, supply \(\propto\) selling price of commodity

Contemporary Relation¶

\(S = \beta_1 + \beta_2 P_{t}\)

• land
• eggs
• milk

Lagged Relation¶

\(S = \beta_1 + \beta_2 P_{t-1}\)

For commodities with large gestation period, such as agricultural

Terms¶

• \(\beta_1 =\) minimum selling price for which suppliers are willing to produce commodity
• \(\beta_2 =\) sensitivity of supply wrt price

Graph¶

• y = P
• x = S

All points on the supply curve show the optimal supplies Any point inside/outside the supply curve will not provide maximum profit

Individual Supply¶

Firm's Supply curve - relationship between market price and the amount that producer decides to produce - simply its MC curve

Every firm has different supply curve due to difference in cost structures

Market Supply¶

Total supply for a commodity in a market at a particular price

Summation of supplies of commodity by different firms at particular prices

In the long run - If any firm prices higher than the long run \(P\), they will not able to sell - If any firm prices lower than the long run \(P\), they will lose money

Why don't firms want the entire market - Marginal cost is upward sloping

Market supply curve is always more elastic that firm supply curve

1. Get production function: \(q = f(\bar k, l, r_k, r_l)\)
2. Get cost function: \(c=f(q)\)
3. Get quantity produced: \(q=f(p)\) from marginal cost
4. Get market supply curve: \(Q=Nq = N f(p)\)

Factors of Supply¶

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