NIOS Economics (318) Notes/Answer| Chapter-16|What affects supply

NIOS Economics (318) Notes/Answer| Chapter-16|What affects supply. Important questions for NIOS Economics (318) Questions Answers brings you latest queries and solutions with accordance to the most recent pointers SOS . Students will clear all their doubts with regard to every chapter by active these necessary chapter queries and elaborate explanations that area unit provided by our specialists so as to assist you higher. These queries can facilitate students prepare well for the exams thanks to time constraint . NIOS Economics (318) Notes/Answer| Chapter-16|What affects supply

HS 2nd years Solutions (English Medium)

NIOS Economics (318) Notes/Answer| Chapter-16|What affects supply

Intext Question

1. Fill in the blanks:

(a) Supply of a commodity means the quantity of a commodity that a seller is willing to sell at a given price during a _________

Ans. given time period

(b) Market supply is the _________ of the supplies of all the sellers of a commodity.

Ans. sum

(c) Supply of a commodity is always at a _________ during a time period.

Ans. price

2. State whether the following statements are true or false?

(a) Supply of a commodity is only affected by its price.

Ans. False

(b) There is an inverse relationship between the price and the supply of a commodity.

Ans. False

(c) Supply schedule of a firm shows the quantities supplied of a commodity by a firm at different prices

Ans. True

(d) Supply curve is upward rising from left to right.

Ans. True

(e) Law of supply states that other things remaining the same the supply of a commodity is equal to its demand at a given price.

Ans. False

(f) Market supply of a commodity is equal to the sum of the supplies by all its sellers in the market at a given price during a time period.

Ans, True

3. Fill in the blanks with suitable words given in the brackets:

(a) The supply of a commodity at the same price will _________ if the prices of other commodities rise. (increase, decrease)

Ans. decrease 

(b) An improvement in production technology will increase the_________of the commodity. (cost, supply)

Ans. supply

(c) A rise in the prices of factors of production increases the_________of the commodity. (cost, supply)

Ans. cost

(d) Changes in other factors change _________ Of the the commodity. (supply, price)

Ans. supply

4. Fill in the blanks with appropriate words given in the brackets: 

(a) Increase in supply means more supply at _________ prices. (higher, same)

Ans. same

(b) Expansion of supply means more supply al _________ prices. (higher, same) 

Ans. higher

(c)_________Supply results in a rightward shift of the supply curve. (Increase in, Expansion of)

Ans. Increase in

(d) When supply of commodities rises at the same price, it is called_________supply. (expansion of, increase in)

Ans. increase in

5. State whether the following statements are true or false.

(a) A fall in supply of a commodity due to an increase in the prices of other commodities is called contraction of supply.

Ans. False

(b) When at the same price of the commodity its supply falls it is called contraction of supply.

Ans. False

(c) Effect of a fall in the price of a commodity on its quantity supplied can be shown a shift in the supply curve.

Ans. False

(d) A leftward shift of the supply curve shows a fall in supply of a commodity due to a fall in its price.

Ans. False

Terminal Exercise

1. What is meant by the term ‘supply”? 

Ans. Supply of a commodity by a firm or seller may be defined as the quantity of a commodity that a firm or seller offers for sale at a given price during a given time period.

The definition of supply include 

  1. the quantity of the commodity that a firm is willing to supply 
  2. the price at which it is willing to supply that quantity and 
  3. the time period during which it is willing to supply that quantity.

Supply is the willingness and ability of producers to create goods and services to take them to market. Supply is positively related to price given that at higher prices there is an incentive to supply more as higher prices may generate increased revenue and profits.

2. Explain briefly the various factors which influence the supply of a commodity. 

Ans. The main factors determining supply of a commodity are

(i) Price of the commodity:

Other factors determining supply remaining constant, there is a direct relationship between price and quantity supplied of a commodity. It means the quantity supplied of a commodity increases with rise in price and decreases with fall in price of the commodity. More quantity of a commodity is supplied at a higher price and less quantity is supplied at a lower price. For example a seller of tomatoes is willing to sell 100 kgs of tomatoes at a price of Rs.40 per keg and only 50 kgs at a price of Rs.20 per kg. Due to this direct relationship between price and quantity supplied of a commodity the supply curve has a positive slope. Supply curve is upward sloping to the right. 

(ii) Price of other related goods:

Supply of a commodity is also influenced by the change in the price of other related goods. With the help of given resources we can produce several goods by using the same technology This helps the firm to diversify and tide over fluctuations in demand. For example, a farmer can produce either pulses or food grains by using the resources. If the price of pulses increases it becomes more profitable for him to make more production of pulses. So he will divert some resources from the production of food grains to the production of pulses. The production of pulses will increase and that of food grains will decrease. So the supply of pulses will increase if the price of pulses increases and the supply of food grain will decrease at the same price. The reverse will happen if the price of food grains increases.

(iii) Price of inputs/factors:

Change in the price of inputs like raw material, wage, rent or interest also influences the supply of a commodity. For example, in the production of cloth, cotton is the main raw material. If the price of cotton increases, the cost of production of cloth will increase. At the same price, the margin of profit will decrease. So the producer will decrease the supply of cloth at the same price. On the other hand if the price of cotton falls, the cost of production per unit of cloth will decrease and hence the supply of cloth will increase. The price of other inputs will also influence the supply of a good in the same manner.

(iv) Technology of production:

An improvement in the technology of production of a commodity decreases the per unit cost of the commodity. The margin of profit will increase at the same price. So the supply of a commodity will increase, with improvement in technology of production, at the same price. On the other hand if a firm uses absolute technology of production, the cost of production per unit of the commodity will increase. The margin of profit will decrease, so the firm will decrease its supply at the same price. This is the main reason that the firms are trying to use better technology of production because it not only reduces the cost of production per unit but also improves the quality of the product.

(v) Taxation policy of government:

If the government reduces the excise duty or the production of a commodity, the cost of production per unit of the commodity will decrease, the margin of profit will increase at the same price so the producer of the commodity will increase its supply. It happens when the government wants to increase the production of the commodity. On the other hand, to discourage the production of some harmful goods, like cigarettes, liquor etc, the government increases the rate of excise duty on the production of such goods. So the cost of production per unit of the commodity increases and the supply of such commodities decreases.

(vi) Objective of the firm:

The objective of the producer also influences the supply of a commodity. Generally, the objective of a producer is get maximise his profits. Profits are maximised at a higher price. So he increases the supply of a commodity at a higher price and decreases its supply at a lower price. But sometimes, the producer may be in maximising his sales and not in maximising his profits as he wants to capture the market. In that case, he goes on increasing the supply so long his target is not achieved and profit is not adversely affected. He may increase the supply at the same price to any extent.

NIOS Class 12th Economics (318) Notes/Question Answer

Chapter Chapters NameLink
Chapter 1Economy and Its ProcessClick Here
Chapter 2Basic Problems of an EconomyClick Here
Chapter 3Economic Development and Indian EconomyClick Here
Chapter 4Statistics: Meaning and ScopeClick Here
Chapter 5Making Statistical Data MeaningfulClick Here
Chapter 6Presentation of Statistical DataClick Here
Chapter 7Statistical MethodsClick Here
Chapter 8Index Numbers (Meanings and Its Construction)Click Here
Chapter 9Index Numbers (Problem and Uses)Click Here
Chapter 10Income FlowsClick Here
Chapter 11National Income: ConceptsClick Here
Chapter 12National Income: MeasurementClick Here
Chapter 13Uses of National Income EstimatesClick Here
Chapter 14What micro EconomicsClick Here
Chapter 15What affects demandClick Here
Chapter 16What affects supplyClick Here
Chapter 17Price determinationClick Here
Chapter 18CostClick Here
Chapter 19RevenueClick Here
Chapter 20Profit maximizationClick Here
Chapter 21Government budgetingClick Here
Chapter 22Money supply and its regulationClick Here
Chapter 23Need for planning in IndiaClick Here
Chapter 24Achievements of planning in IndiaClick Here
Chapter 25Recent economic reforms and the role of planningClick Here

Optical Module – I

Chapter 26AgricultureClick Here
Chapter 27IndustryClick Here
Chapter 28Independence of Agriculture and IndustryClick Here
Chapter 29Transport and CommunicationClick Here
Chapter 30EnergyClick Here
Chapter 31Financial InstitutionsClick Here
Chapter 32Social Infrastructure (Housing, Health and Education)Click Here

Optical Module – II

Chapter 33Direction and composition of India’s Foreign tradeClick Here
Chapter 34Foreign exchange rateClick Here
Chapter 35Balance of trade and balance of paymentsClick Here
Chapter 36Inflow of capital (Foreign Capital and Foreign Aid)Click Here
Chapter 37New trade policy and its implicationsClick Here
Chapter 38Population and economic developmentClick Here
Chapter 39Population of IndiaClick Here

3. Explain how the price of a commodity influences its supply.

Ans.Change in the price of inputs like raw material, wage, rent or interest also influences the supply of a commodity. For example, in the production of cloth, cotton is the main raw material. If the price of cotton increases, the cost of production of cloth will increase. At the same price, the margin of profit will decrease. So the producer will decrease the supply of cloth at the same price. On the other hand if the price of cotton falls, the cost of production per unit of cloth will decrease and hence the supply of cloth will increase. The price of other inputs will also influence the supply of a good in the same manner.

4. Explain the law of supply and point out the main assumptions behind the law.

Ans. The law of supply depicts the relationship between price and quantity supplied of a commodity when all other determinants of supply remain constant. This law states that there is a direct relationship between price and quantity supplied of a commodity, other factors determining supply remaining constant. It means quantity supplied of a commodity increases with increase in price and decreases with decrease in price.

It can be explained with the help of following schedule and diagram: 

Price

Quantity Supplied (units) 

102030 

100200300

The supply schedule shows the positive relationship between price and quantity supplied. This is in accordance with the Law of Supply.

SS is the supply curve sloping upward. It shows a positive relationship between price and quantity supplied of a commodity. When price increases from Rs 10 to Rs 20, quantity supplied increases from 100 to 200 units.

The following are the main assumptions of the law of supply. 

  1.  Price of other related goods should remain the same
  2. There should be no change in the price of inputs (factors) 
  3. Technology of production should not change. 
  4. There is no change in the taxation policy of the government.
  5. The objective of the firm should not change. The law of supply is based on the assumption that the supply of a commodity changes only due to change in price when all other determinants of supply remain constant.

5. Distinguish between market supply schedule and market supply curve. 

Ans. Market supply schedule is constructed by summing up the supplies of all the individual firms at different prices during a given period of time. A market supply schedule is a table showing the total supply of goods by all the firms at different prices during a given time period. Market supply schedule can be explained with the help of the following table.

Market supply schedule for sugar

Price per kg (rs)Quantity supplied of sugar by firm A (kgs)Quantitysupplied by firm B (kgs)Quantity supplied by firm C (kgs)Market supply A+B+C (kg)
251002000300
30200300100600
35300400200900
404005003001200
455006004001500

In the above table we see that at a price of Rs 25 per kg the firms A, B and C are willing to sell 100, 200 and 0 kgs of sugar respectively. So the market supply as ‘ 25 is 100 + 200 +0

= 300 kgs of sugar. In the same way the market supply has been calculated at other prices also. The market supply is influenced by the number of firms in the market.

Market supply can be derived by horizontal summation of all individual supply curve: It show the different quantities of a commodity that all the firms are willing to sell at different prices during a given time period.

Let us assume that these are only 3 firms supplying sugar in the market. The supply curves of these firms are represented by SA. SB and SC respectively. At Rs.30 per kg each firm is willing to sell 200, 300 and 100 kgs of sugar respectively. The market supply at Rs.30 per kg is the sum of the supply of the three firms 200+300 +100 = 600 kgs of sugar. This gives us one point A on the market supply curve as shown in the figure given below.

6. How is it possible that a producer is prepared to supply more of a commodity even when its price has not changed?

Ans. The objective of the producer also influences the supply of a commodity. Generally, the objective of a producer is to maximise his profits. Profits are maximised at a higher price.

So he increases the supply of a commodity at a higher price and decreases its supply at a lower price. But sometimes, the producer may be in maximising his sales and not in maximising his profits as he wants to capture the market. In that case, he goes on increasing the supply so long his target is not achieved and profit is not adversely affected. He may increase the supply at the same price to any extent.

7. Distinguish between expansion of supply and increase in supply of a commodity. 

Ans.. Distinguish between expansion in supply and increase in supply are

  1. The supply increases when factors other than the price of the commodity changes. Such an increase shifts the entire supply curve outward. The expansion of supply is rooted only in the price of the commodity with all the other factors constant. 
  2. If there is an increase in supply or shift in the supply curve to the right then it means the entire supply curve has shifted to the right side. On the other hand, expansion of supply shows the changes on the same supply curve. There is an upward movement along the same supply curve. 3. The diagram of increase in supply is shown through two supply curves. Whereas the expansion of supply is shown on a single supply curve.

8. Distinguish between contraction of supply and decrease in supply of a commodity.

Ans. Distinguish between decrease in supply and contraction in supply are.

  1.  The supply curve shifts to the left when there are changes in factors other than the price of the product resulting in decrease in supply. Contraction of supply occurs when there is a fall in the price of the product. Here the impact of price fall is plotted on the same supply curve.
  2. When there is a decrease in supply or shift in the supply curve to the left then it means the entire supply curve has shifted to the left side. On the other hand, contraction of supply shows the changes on the same supply curve. Here there is a downward movement along the same supply curve. 3. The decrease in supply is shown with the help of two supply curves. Whereas contraction in supply is shown on the same supply curve.

9. Distinguish between ‘shift in supply curve’ and ‘movement along the supply curve’. 

Ans. Distinguish between movement along the same supply curve and shift of supply curve are

  1. Movement along the same supply curve takes place as a result of changes in price, other things remain constant. Pt is also known as change in quantity supplied. Shift of supply curve takes place due to changes in factors other than price, i.e. price remains constant. It is also known as a change in supply.
  1. In movement along the same supply curve the supply curve remains the same. Whereas in the shift of supply curve supply curve shifts either to right or to the left.
  2. In movement along the same supply curve there is expansion and contraction in supply. Whereas in the shift of supply curve there is increase and decrease in supply.

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