Page 35 - DECO405_MANAGERIAL_ECONOMICS

Managerial Economics Anand Thakur, Lovely Professional University

Notes Unit 3: Market Supply and Equilibrium

CONTENTS
Objectives
Introduction

3.1 Market Supply
3.2 Market Equilibrium
3.3 Summary

3.4 Keywords
3.5 Self Assessment
3.6 Review Questions

3.7 Further Readings

Objectives

After studying this unit, you will be able to:
State the law of supply
Explain how market equilibrium is reached

Introduction

It is true that economy runs on demand but that demand has to be fulfilled with corresponding
supply as well. Say, if there is a huge demand for mobile phones in an economy, there has to be
corresponding supply to fulfill that demand.
If adequate supply is not there, then the demand would not be fulfilled.

Example: You are willing to buy a tennis ball, but the shopkeepers tell you that there are
no balls available in the market due to short supply.
We all do face such situations, many a times.

3.1 Market Supply

Supply is the specific quantity of output that the producers are willing and able to make available
to consumers at a particular price over a given period of time. In one sense, supply is the mirror
image of demand. Individuals’ supply of the factors of production or inputs to market mirrors
other individuals’ demand for these factors. For example, if we want to rest instead of weeding
the garden, we hire someone: we demand labour. For a large number of goods, however, the
supply process is more complicated than demand.
Supply is not simply the number of a commodity a shopkeeper has on the shelf, such as
’10 oranges’ or ’10 packet of chips’, because supply represents the entire relationship between

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