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Economic Theory

again by convention economists always put price (P) on the vertical axis
and quantity (Qs) on the horizontal axis. It is possible for the quantity of
the good supplied to a market to be a function of price, or for price to be a
function of the quantity supplied of the good to the market, but by

convention, price goes on the vertical axis and quantity goes on the
horizontal axis. Inserting a quantity of 10 (billion) bushels for Qs results in

a price of $2, indicating that farmers would supply 10 (billion) bushels of
corn at a price of $2 per bushel.
Supply curve is the graphical representation of the supply schedule. A
supply curve is shown in the Figure 7.2. The linear supply function is

upward-sloping to the right, not downward-sloping as was true for the
demand function.
The law of supply states that, other things remaining same, as the

price of a commodity rises, its supply also rises and as the price falls,
supply contracts. Thus supply and price of a commodity have
direct/positive relationship, i.e., higher the price, larger will be the supply
and vice versa. According to Marshall, “As the prices rise, other things

remaining same, the supply rises and as the price falls the supply
decreases”. The law of supply can be explained through a supply schedule
and supply curve in the Figure 5.2.

It is seen in the table that, as price of bushels of corn rise from $1,5 to
$2, farmers increase supply of bushels of corn from 5 (billion) bushels to
10 (billion) bushels. Thus price and supply varies directly. Higher the
price, more is the supply and vice versa, other factors remaining constant.

These factors are money income of sellers and buyers, technology, costs of
all factors of production, taxes and subsidies, prices of related goods etc.

Table and graph in Figure 5.2 illustrate a positive relationship between the
price of a good and the quantity supplied. As the good’s own price
increases, more of the good is consumed.
Supply of a commodity depends upon a number of factors. The

important determinants of supply can be grouped together in a supply
function as follows:

Sx  f Px , Py , T , F , G ... . (5.2)

Supply function describes the functional relationship between supply

of a commodity (Sx ) and other determinants of supply, i.e., price of the
commodity (Px), prices of related commodities (Py ), price of the factors

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