Producer Behaviour and Supply Class 12 Economics Notes and Questions

Please refer to Economics Producer Behaviour and Supply Class 12 Economics Notes and important questions below. The Class 12 Economics Chapter wise notes have been prepared based on the latest syllabus issued for the current academic year by CBSE. Students should revise these notes and go through important Class 12 Economics examination questions given below to obtain better marks in exams

Producer Behaviour and Supply Class 12 Economics Notes and Questions

The below Class 12 Producer Behaviour and Supply notes have been designed by expert Economics teachers. These will help you a lot to understand all important topics given in your NCERT Class 12 Economics textbook.

Individual Supply refers to that quantity of a product which a producer offers for sale at each possible price and given period of time.

Market Supply refers to that quantity of a product which all the producers offer for sale at each possible price and given period of time.

Stock refers to total quantity of a particular commodity that is available with the firm at a particular point of time. On the other hand, Supply is that part of stock which a producer is willing to bring in the market for sale.

Supply Vs Stock
1. Supply refers to the quantity, which a producer is willing to offer for sale, which changes with change in price, whereas stock indicates a fixed quantity.
2. Supply relates to a period of time, whereas, stock relates to a particular point of time.

Question. What are the factors affecting individual supply of a product?
OR
What are the determinants of individual supply?
Ans. The determinants of individual supply are: –
1. Price of the product [P_X]
Quantity supplied of a product is directly related to price of the product. Thus, producer offers more quantity for sale with increase in price of product and vice versa.
2. Price of related product [P_r]
There is inverse relationship between supply of a good and the price of substitute good. When the price of substitute good (say rice) increases then it become more profitable to supply that substitute good. So, supply of given good (say wheat) will decrease and vice versa.
3. Input prices/Factor prices [I_p]
Price of inputs like rent, wages, price of raw material, fuel and power are the part of cost of production. Thus, increase in input price will increase the production cost and leads to decrease in profit margin. Thereby, producer decreases the supply of product and vice versa. Thus, supply of product is inversely affected by change in input prices.
4. Technology [T]
If there is improvement in technology like use of advanced techniques, modern machines which leads to decrease in per unit production cost, so it will increase profit margin and thereby increases supply of product.
Similarly, use of old/ outdated/ obsolete technology increases per unit production cost. Therefore, producer decreases the supply of product.
5. Government Policies [G_p]
a) Supply of a product is inversely related to the change in indirect tax rate (GST, Custom Duty). If government increases indirect tax rate, it will increase production cost. Thereby, decreases the supply of product and vice versa.
b) Supply of a product is directly related to the subsidies given by government for producing a product. So, increase in subsidies on a product decreases production cost. Thereby, increases the supply of product and vice versa.

Question. What are the factors affecting market supply of a product?
OR
What are the determinants of market supply?
Ans. The determinants of market supply are: –
1. Number of Firms in the market [N]
When the number of firms in the industry increases, market supply also increases due to large number of producers producing that commodity. However, market supply will decrease, if some of the firms start leaving the industry due to losses.
2. Future Expectations [F_e]
If sellers expect a rise in price in near future, then current market supply will decrease in order to raise the supply in future at higher prices. However, if the sellers fear that the price will fall in the future, then they will increase the present supply to avoid losses in future.
3. Means of Transportation and Communication [M]
Proper infrastructural development, like improvement in the means of transport and communication, help in maintaining adequate supply of the commodity.

Individual Supply Function
The functional relationship between individual supply and factors affecting individual supply of a product is called Individual Supply Function.

S_X= f(P_X, P_r, I_p, T, G_p)

Market Supply Function
The functional relationship between market supply and factors affecting market supply of a product is called Market Supply Function.

S_X= f(P_X, P_r, I_p, T, G_p, N, F_e, M)

Law of Supply
It states that other factors remain constant, there is direct relationship between price and quantity supplied.
In other words, if factors other than price of the product like price of related goods, Input prices, Technology, etc. does not change, then producer increases quantity supplied with increase in price the product and vice versa.

Question. What do you mean by Individual Supply Schedule and Individual Supply Curve?
Ans. Individual Supply Schedule- The numerical tabulation of law of supply. It shows quantity offered for sale by a producer at different prices of a product.
Individual Supply Curve- The graphical presentation of individual supply schedule is individual supply curve.

Question. What do you mean by Market Supply Schedule and Market Supply Curve?
Ans. Market Supply Schedule- Market supply schedule refers to a tabular statement showing various quantities of a commodity that all the producers are willing to sell at various levels of price, during a given period of time.
Market Supply Curve- The graphical presentation of market supply schedule is market supply curve.

Question. What do you mean by change in quantity supplied/ expansion or contraction of supply/ movement along the same supply curve?
Ans. When quantity supplied of a product increases or decreases as a result of change in price of product, keeping other factors constant, it is called change in quantity supplied. It is also known as expansion/contraction of supply.

a) Increase in quantity supplied
When quantity supplied of a product increases as a result of increase in the price of the product, keeping other factors constant, it is called increase in quantity supplied. It is also known as Expansion of Supply. There will be upward movement along the same supply curve.

b) Decrease in quantity supplied
When quantity supplied of a product decreases as a result of decrease in the price of the product, keeping other factors constant, it is called decrease in quantity supplied. It is also known as Contraction of Supply. There will be downward movement along the same supply curve.

Question. What do you mean by change in supply/ increase or decrease in supply/ shift in supply curve?
Ans. When supply of a product increases or decreases as a result of change in other factors keeping price of the product constant is called change in supply. There will be shift in supply curve.

a) Increase in Supply
When supply of a product increases as a result of favourable changes in other factors like improvement in technology, decrease in input prices, decrease in tax etc., keeping price of the product constant is called increase in supply. There will be rightward shift in supply curve.

b) Decrease in Supply
When supply of a product decreases as a result of unfavourable changes in other factors like use of obsolete technology, increase in input prices, increase in tax etc., keeping price of the product constant is called decrease in supply. There will be leftward shift in supply curve.

Question. What are the causes of increase in supply/ rightward shift in supply curve?
Ans. Increase in supply, i.e. rightward shift in supply curve is caused by change in the factors other than price of the commodity which are as below: –

1. Decrease in the price of the substitute goods
When price of substitute good(wheat) decreases, then it become less profitable to supply that substitute good. So, supply of given product(rice) will increase and shift supply curve rightward.

2. Fall in input prices
When prices of inputs like rent, wages, price of raw materials, fuel and power etc. decreases, then it will decrease per unit cost and thereby increases profit margin. So, producer will increase the supply which will shift the supply curve rightward.

3. Improvement in technology
If there is use of improved technology like better machines, modern techniques, etc. which leads to decrease in per unit cost of production, then it will increase the supply and shift the supply curve rightward.

4. Change in Government Policies
When government decreases excise tax rate or increases subsidies on producing a good, then it will decrease per unit cost. So, leads to increase in supply of product and shift supply curve rightward.

Exceptions to Law of Supply

1. Agricultural Goods: The law of supply does not apply to agricultural goods as their production depends on climatic conditions. If due to unforeseen changes in weather, the production of agricultural products is low, then their supply cannot be increased even at higher prices.

2. Perishable Goods: In case of perishable goods, like vegetables, fruits etc., sellers will be ready to sell more even if the prices are falling. It happens because sellers cannot hold such goods for long.

3. Rare articles: Rare, artistic and precious articles are also outside the scope of law of supply. For example, supply of rare articles like painting of Mona Lisa cannot be increased, even if the prices are increased.

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