Supply FunctionSupply Function

The supply function is a numerical representation of the relationship between the expected price (quantity) of a product or service, its value and other related factors, such as the price of the related product and the input price. A supply function has many dependent variables and independent variables. Equilibrium can be modeled by examining the relationship between independent variables and supply. It can be created by defining whether the relationship is negative or positive.

For example, price or cost and supply are often linked in other ways. Here again, supply and innovation are closely linked; for example, new beauty and technology indicate increased supply.

The supply function is expressed as, Sx = f (Px , P0 , Pf, St , T, O)

Where:

Sx = Supply of the given commodity x.

Px= Price of the given commodity x.

P0 = Price of other goods.

Pf = Prices of factors of production.

St= State of technology.

T = Taxation policy.

O = Objective of the firm.

Supply Function shows the relations between supply of a commodity and Its various determinants. However,price of the same commodity is the most important determinant of supply.Therefore,the supply function,for the sake of simplicity ,can be expressed as:

Qx=f(Px)

Where,

Qx=Quantity of commodity X

Px=Price of commodity X

The above supply Function states the nature of relationship between the price and the quantity suppplied. It means,means the quantity supplied supplied of a commodity is the Function of the price of that commodity.

Also Check : What is Supply? Meaning & Examples .

Law of Supply

The Functional Relation between price and quantity supplied gives the law of supply .According to the law,Other things remaining the same,the quantity supplied of a commodity is directly related to the price of the commodity .It Means that when the price rises,the quantity supplied increase and when the price falls ,the quantity supplied decreases.

Assumptions

The law of supply is based on the following assumptions:

  • No change in price of inputs or factors of production.
  • No change in state of technology.
  • No change in goal of producers.
  • No change in number of producers.
  • No change in price of other goods
  • No change in tax and subsidy policy of the government.


On the basis of these assumptions, the law of supply can be explained with the help of supply schedule and supply curve.

Supply Schedule

A supply schedule is a tabular presentation of the various quantities of a given commodity offered for sale at various prices at given time period. A hypothetical supply schedule is given below in the table:

Price(in Rs.)Quantity Supplied (in Units)
110
220
330
440
550
Table of Supply Schedule

The table shows that when the price of a commodity is Re. 1 per unit, the quantity supplied is 10 units. When the price of the commodity rises to Rs. 2 per unit, 20 units of the commodity are supplied. Similarly, when the price rises to Rs. 5 per unit, 50 units of a commodity are supplied. It can also be shown by the help of supply curve.

Supply Curve

Supply curve is a graphical representation of supply schedule, indicating positive relationship between price of a commodity and its quantity supplied.

In the figure when the price of a commodity is Rs. 2 per unit, the quantity supplied is 5 units. As the price rises to Rs. 4 per unit, the quantity supplied increases to 10 units. Similarly, as the price rises to Rs. 8 per unit, the quantity supplied increases to 20 units. In the figure, points A, B, C, D and E are obtained by the price-supply relation.

By joining these points, we get a curve SS, which is known as supply curve. It is upward sloping. It means that there is positive relationship between price and quantity supplied.

FAQ,s of Supply Function

How much time does it take to prepare for exams? Is it difficult?

Purchasing is a subject that covers microeconomics, macroeconomics and business. It may be difficult to cover all these topics in the limited time. Substitute work requires at least one month of preparation for the exam. The supply chain involves understanding concepts such as market equilibrium, price level, etc., which are not easy to understand immediately if you have not studied them before or have little knowledge.

What are the different types of Supply functions?

A supply function is a relationship that shows how price affects the quantity supplied in an economy, industry, or region over time when all other variables are held constant. There are two types of supply functions: the price elasticity of supply curve (PES), also known as the law of the supply chain, corresponds to the relationship between the given quantity and its determinants such as unit price, total product expenditure , etc. limit. Cost – this explains the effect of another additional factor, that is the change in the variable cost due to the process of production / production, and the total cost of production considering all fixed factors

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