2.2 Theory of Supply

Meaning: the quantity of a good sellers offer for sale at a given price, in a given period. Determinants of supply: 1. Price of the good (P) — the prime mover; 2. Prices of inputs/production cost (C) — fertiliser and diesel prices move vegetable supply; 3. Technology (T) — better technique shifts supply right; 4. Taxes and subsidies (S) — a VAT or excise rise reduces supply; subsidies raise it (a legal instrument visibly moving a curve); 5. Expectations of future prices (hoarding vs releasing stocks); 6. Number of sellers (N) — entry raises market supply; 7. Weather and natural conditions (W) — agriculture and hydropower live by it (a weak monsoon shifts the rice supply curve left). The Law of Supply: ceteris paribus, quantity supplied varies directly with price — higher price makes production more profitable, so more is offered. The supply curve slopes upward. Exceptions: fixed supply regardless of price (land, antiques, a Bhimsen Thapa-era statue — perfectly inelastic vertical supply in the limit); backward labour supply at very high wages. Movement vs shift: own-price change = movement along the curve; any other determinant = shift (right = increase, left = decrease).