CAIIB ABM FREE SHORT NOTES ON SUPPLY | ABM 2022 STUDY MATERIAL | UNIT-2 ABM CAIIB 2022 FREE NOTES
This article explains about the supply in the context of Economics. It was in the syllabus of the Advanced Bank Management of CAIIB Paper for 2022 Exams.
This article is the further part of the Unit-2 ABM notes. The first part explains about the demand, demand schedule and equilibrium. And this article furthers the material taking up the concept of supply of goods & services.
You can also find the PDF file of this article (Notes on Supply) at the end of this page.
The term supply is used to refer to the quantity of goods or services a supplier is willing & able to produce for the market at a specific price. The willingness and ability to make available the products in the market is influenced by the availability of stocks and other factors which determine the supply.
Fluctuation in prices will impact the market equilibrium. If the prices of the products are increased it will result in more supply and if the prices are decreased it will have the opposite effect.
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In an ideal situation, consumers are the one who influence the supply of a product by indicating that they need more quantity of the products which results in increase in prices.
For the supplier, the movements of the market provide a positive indicator for increasing the volume of supplies. Although, the pattern of change may vary for different products. At a point where supply = demand, the price of the product or services is set to be equilibrium. This means you say that there is no supply and there is a shortage.
For the time supply is at equilibrium, consumers enjoy maximum utility and the suppliers earn optimal profits. If the supply is increased in the market, it will lower the prices which will lead to loss to the suppliers. This kind of effect (loss to supplier) will lower down the prices so that the prices can reach equilibrium again.
EXAMPLE: SUPPLY ELASTICITY
It will make more sense when the supply of products and services are expressed against price and time.
This is the reason why it is sensible for a farmer to produce 20 crates of tomatoes in one month rather than producing only 20 crates without expressing in what time frame they will be produced.
When we speak in terms of supply, farmers may sell 1 crate @ Rs.110.00 This way, farmer can produce 20 crates every month which can be sold @ Rs.110.00
In the economic sense, price and time is used to express the quantity of tomatoes produced and sold. This leads to the introduction of elasticity. When we talk about the supply elasticity, a change in price can influence the behaviour of a farmer’s supply.
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Example: If tomato’s price increases to Rs.115. This will be taken as a positive indicator by farmers to increase the supply to 40 crates p.m.
This is the dramatic transformation in supply of goods, which is called elastic supply. But if this only a minimal change or no change at all, the supply will be taken as inelastic.
The reason behind the evaluation of elasticity is to check whether there will be any proportionate change in the quantity supplied on change of prices.
If there is a significant increase in the supply, it will be taken as more elastic, otherwise less elastic or inelastic.
OVERVIEW OF SUPPLY FORMULAS
There are many mathematical formulas which are used to calculate the supply. However, in general they are used to express the impact of factors of supply on the supply of goods and services.
One popular tool is to graphically simplify the concept of supply through the supply curve. It helps in depicting the association between the price of a product and the quantity of the product.
If one of the supply factors changes it will lead to change in the price. With the help of the supply curve, we can know how many quantities are supplied when there is a change in the price of the product. This is also another way to explain the market elasticity.
THE LAW OF SUPPLY
When prices in the market change, this economic law explains how suppliers react. As a result of an increase in the price of a particular product or service, suppliers increase the supply of products in an effort to attain maximum profits.
If all factors in the market are to remain constant, rather than moving along with the fall in prices, they tend to move along with the supply until equilibrium is reached.
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TYPES OF SUPPLY
Short-term supply: The short-term supply of goods determines whether an individual is able to buy the goods. Buyers cannot purchase beyond the quantity of goods.
Long-term supply: Time availability explains the relevance of long-term supply whenever demand changes – that is, the suppliers have a leeway in meeting a sudden shift in demand.
Joint supply: It provides an explanation for the consequential supply. For example, lamb production is going to affect the supply of meat & wool. Meat and wool supplies will decrease if farmers reduce the number of lambs they raise. Similarly, an increase will have the opposite effect.
Market supply: Defining the market supply refers to how well and willing all suppliers are to provide a particular product to the market on a day-to-day basis.
For example: Wheat suppliers X, Y, & Z may be willing to supply 10, 5, 12 kilos in the market at Rs.10 per kilo for a total of 27 kilos. If prices rise to Rs.25, the suppliers may increase to 20, 15, and 30 kilos, respectively. In total, the market supply amounts to 65 kilos.
Composite supply: When a product serves more than one purpose, it is called composite supply. A perfect example of composite supply is the mining of crude oil. The production of oil is going to affect the manufacturing of gas, diesel, kerosene, petrol, etc.
SUPPLY CURVE: Curve of Supplies: A curve of supplies shows the relationship between the amount of supply of a product or service over a given period. Prices are provided on the left vertical axis, while quantities are represented on the horizontal axis. In general, the curve begins from the left side and moves upward. Hence, the law of supply can be seen in action. If all other factors remain the same, as the price rises so does the supply.
EQUILIBRIUM: Supply and demand are balanced when economic equilibrium is reached. This supply curve is sloping upward from left to right. Nevertheless, the demand curve descends. At some point, these two curves are expected to intersect. The price at which equilibrium occurs is that point. According to this analysis, there is neither excess nor shortage of supply at that price level.
OVERSUPPLY: When there is excess supply (also known as oversupply), there are more items available on the market than there are consumers. Oversupply occurs for various reasons. Underneath are the most common reasons:
- Consumers might want a better and improved model of the product.
- The product prices are too high & people do not want to purchase the product at that price.
- Producer has simply made a wrong guess of the demand.
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SUPPLY-SIDE ECONOMICS: This is the Fury which claims that if a production is increased to a result in economic growth. It is also sometimes known as Reaganomics and trickle-down policy. In this theory of supply side economics, focus is on making available a better business climate.
It recommends that incentives should be provided to businesses by giving the text benefits and deregulating the rules and regulations so that extension can happen which will drive economic growth.
It consists of 3 pillars:
- Tax policy
- Regulatory policy
- Monetary policy
At the end, we can say that supply means the quantity of goods or services which a supplier is ready and able to bring into the market at a specific price. The law of supply tells us how the supplier will decide about the quantities that he will produce when there is a change in the market prices. The supply can be categorized into following types: Market supply, long-term supply, short-term supply, joint supply, & composite supply.