STATE COUNCIL OF EDUCATIONAL RESEARCH &TRAINING VARUN MARG, DEFENCE COLONY, NEW DELHI Teaching‐ Learning Material (On the basis of weekly syllabus for the month of July’ 2011) For Class XII PGT (Economics) Chief Advisor Co‐ ordinators 1. Dr. Seema Srivastava Ms. Rashmi Krishnan Sr. Lecturer, DIET, Moti Bagh Director, SCERT 2. Ms. Meenakshi Yadav Sr. Lecturer, SCERT Advisor Contributors Dr. Pratibha Sharma 1. Dr. Seema Srivastava Joint Director, SCERT Sr. Lecturer, DIET, Moti Bagh 2. Ms. Meenakshi Yadav Sr. Lecturer, SCERT Mohammad Zamir 3. Mr Bharat Thakur Principal, DIET Keshav Puram PGT (Economics) RPVV, Surajmal Vihar Support Material
For
Teachers
In
Economics – Class XII
Co‐ordinators 1. Dr. Seema Srivastava 2. Ms. Meenakshi Yadav Contributors 1. Dr. Seema Srivastava 2. Ms. Meenakshi Yadav 3. Mr.Bharat Thakur Technical Support 1.Mr.V.K.Sodhi 2.Ms.Sapna Yadav 3.Radha 4.Ritu Rani 5. Garima Class – XII Teaching ‐Learning Material for PGT (Economics) Based on “Week wise Distribution of Syllabus 2011 ‐2012 For the month of July: (11.07.2011 – 16.07.2011) 7 days Recapitulate
In previous chapters, Supply, Market Supply, Determinants of Market Supply were covered.
Recap that Supply is defined as the quantity that a firm is willing to sell at a given price and at a
given time.
Abstract
The present unit will explain the Supply Schedule, how it is prepared. Supply Curve,
Movement along and Shift in Supply Curve, Price Elasticity of Supply, Measurement of Price
Elasticity- Percentage Change Method and Geometric Method.
Learning Objectives After going through the content you will be able to:
1. State the meaning of Supply Schedule.
2. Define Supply Curve.
3. Draw the Supply Curve.
4. Explain Movement along the Supply Curve and Shift in Supply Curve.
5. Define Elasticity of Supply.
6. Explain different degrees of Elasticity of Supply.
7. Represent the different degrees of Elasticity of Supply diagrammatically.
8. Solve numerical examples to determine the Price Elasticity of Supply.
9. Measure the Price Elasticity of Supply by- Percentage Change Method and Geometric
Method
Supply Schedule - A Supply Schedule is a table which shows how much one or more firms will
be willing to supply ay a particular price.
It is a table listing or showing the exact quantities of a single type of goods or services that
potential sellers would offer to sell at varying prices during a particular time period.
Example of Supply Schedule
Table A
Price
1
2
3
4
5
Quantity Supplied
12
28
42
52
60
We can also say that Supply Schedule is a depiction in tabular form, of price and quantity
supplied at a point of time keeping other* factor constant. (*Price of related goods,
Condition/Technology in Production, Seller’s Expectations etc.)
Supply Curve
It is a curve that shows relationship of price and quantity supplied graphically or we can say the
relationship of price and quantity supplies that can be exhibited graphically is termed as Supply
Curve.
Keeping other factors constant the Supply Curve depicts the relationship between two variables
only. These are:
•
Price
•
Quantity Supplied.
For example: - By plotting the data given above in Table A (Supply Schedule), we can get or
draw a supply Curve which is as follows.
The Supply Curve is generally positively sloped which shows direct positive relationship between Price and quantity supplied. It clearly indicates that at higher price, larger quantities are supplied for sale to make more profits. Movement along and Shift in Supply Curve A change in the price of commodity leads to a change in the quantity supplied. This results in the movement along the same Supply Curve, whereas the shift in the Supply Curve comes from the outside forces. Movement along the supply is due to change in either the Quantity Supplied or the Price. Movement is the extension of the supply curve with the change in Price or quantity supplied A shift of the supply curve comes from outside forces such as change in consumer wants / need / preference / economic changes or changes due to technology etc. It shows the change in position of Supply Curve from one place to other. Movement along the Supply Curve Shift in Supply Curve Factor that shift the Supply Curve: 1. Change in Output Cost 2. Increasing use of technology in production 3. Change in size of the industry Measurement of Price Elasticity of Supply Price Elasticity of Supply measures the responsiveness of quantity supplied to change in price, as percentage change in Quantity Supplied induced by percentage change in Price. There are two methods of measuring Price Elasticity of Supply:‐ 1. Percentage – Change Method 2. Geometric method 1. Percentage – change Method According to this method Price Elasticity of supply (Es) is measured as under:‐ Price Elasticity of Supply (Es) = % Change in Quantity Supplied % Change in Price Where
Q – Change in Quantity supplied
Q – initial Quantity Supplied
P – Change in Price
P - Initial Price
2. Geometric Method
Under this method five different situations of Price Elasticity can be described as follows:a) Unitary Elasticity or Es=1
In this situation the supply curve slopes upward in a straight line which starts from point of
origin. This shows the percentage change in Quantity supply is exactly equals to
percentage change in price.
b) Greater than Unitary Elasticity or Es ≥ 1
When a straight line upward sloping curve starts from Y-axis, then this is a case of
Unitary Elasticity. This depicts that percentage change in quantity supplied is greater
than percentage change in price.
c) Less than Unitary Elasticity or Es ≤ 1
When a straight line upward sloping curve starts from X-axis then this is a case of less than
Unitary Elasticity. This represents that percentage change in quantity supplied is less
than percentage change in price.
d) Perfectly Inelastic Supply or Es = 0
It is a situation where there is no change in supply regardless of change in price. It shows
that supply remain unchanged with the change in price. In such situation supply
curve is vertical straight line curve.
e) Perfectly Elastic Supply or Es = 0
In this situation supply is infinite corresponding to a particular price of the commodity.
Accordingly a slightest fall in price caused an infinite change in supply, reducing it
to zero. In this case supply curve is horizontal straight line.
Es=0
Check your Progress 1. Draw a Supply Curve based on the Supply Schedule given below: Price (Rs.) Quantity Supplied 2 10 4 16 6 28 8 35 10 60 2. Differentiate between Movement along the Supply Curve and Shift in Supply Curve. 3. Explain the factors that results in Shift in Supply Curve. 4. Define Price Elasticity of Supply. 5. In the Diagram given below, state the nature of Elasticity of Supply of the different Supply Curves. 6. A 20% raise in the price of the Commodity A leads to a rise in its supply from 400 to 500 units. Calculate its Elasticity of Supply and comment on it. Summary Supply Schedule is a table that shows quantity supplied of goods and services at particular price and at given point of time. A Supply Curve is a Graphical representation of quantity supplied of goods and services against the given prices. Movement along the Supply Curve is due to change in quantity supplied or the price. There is Shift in Supply Curve is due to other factors such as Consumer’s Needs and Preferences, Change in Technology etc.Price Elasticity is the responsiveness of quantity supplied to change in price. Price Elasticity of Supply can be measured through Percentage Change Method and Geometric Method. Elasticity of Supply can be interpreted as 1, Greater than 1, Less than 1, 0 or infinity. Technical Terms
Supply Schedule: It is the depiction in tabular form; the Price and Quantity Supplied by an individual firm at a point of time keeping other factors constant. It is a tabular representation of Law of Supply. Supply Curve: It is a graphic representation of Law of Supply which shows the relationship of Price and Quantity Supplied at a point of time. Market Supply: It is obtained from the horizontal summation of Supply of individual firms. It is affected by all factors that influence individual Supply and the number of firms in the market. Elasticity of Supply: It measures the degree of responsiveness of Supply to change in the Price of the commodity. It is measured as: a) Proportionate method‐ Where:
Q – Change in Quantity supplied
Q – initial Quantity Supplied
P – Change in Price
P - Initial Price
b) Geometric Method-
Es=
CQ
--------------OQ
Where CQ is the distance between where Supply Curve cuts the X- axis and Quantity Supplied;
and OQ is the Quantity Supplied at a given price.
Various degrees of Elasticity of Supply
Perfectly Elastic Is defined as a situation when an infinitely small change in price causes an
infinitely large change in quantity supplied. It has a value of infinity.
Perfectly Inelastic has a value Zero. This is defined as a situation when quantity supplied does
not change irrespective of price change.
Relatively Elastic has a value of more than one. Here percentage change on Quantity Supplied is
more than the percentage change in Price.
Relatively inelastic has a value less than one. Here, the percentage change on Quantity Supplied
is less than the percentage change in Price.
Unitary Elastic has an absolute value of ‘1’. Supply change by the same extent as price changes.
URL’s
Making Supply Schedule http://www.youtube.com/watch?v=ucXqf8wEzt4 Shift in supply Curve http://www.youtube.com/watch?v=SzP6ISwcHqY&feature=related Shift in Supply http://www.youtube.com/watch?v=CTUpItRj81M&feature=related Change in Supply and shift in Supply http://www.youtube.com/watch?v=JiGhGzCL7Js&feature=related Change in Supply http://www.youtube.com/watch?v=z6ZZhH‐vHHo Elasticity of Supply http://www.mindbites.com/lesson/7772‐economics‐identifying‐determinants‐of‐elasticity