ECONOMIX’S

Date – 5-11-25

FACTORS AFFECTING SUPPLY:

1. PRICE OF GOODS - The most direct factor affec ng supply higher prices
provides an incen ve for firms to produce and sale more while lower prices
discourage produc on.

Ex – When the price of orange rises from Rs 50 to Rs 60. Farmers are

encouraged to sell more oranges to increase profits.

2. PRICE OF RELATED GOOD – Resources can be used to produce mul ple

product the price of one affects the supply of the other.

Ex – If the price of co on rises farmer may plant more co on, less rice
decreasing rice supply.

3. COST OF PRODUCTION – The cost of inputs like labor, raw materials,

machinery and electricity affects producers’ ability to supply.

Lower cost = Higher profits = more supply

Ex – If the price of steel (used in car manufacturing) increases the cost of

producing cars rises – reducing the supply of cars.

4. TECHNOLOGY - Be er technology improves efficiency, reduces wastage and

lowers the cost per unit of output.

Ex – Modern irriga on and fer liza on methods increase crop yield shi ing the
supply curve of agriculture product to the right.
5. GOVERNMENT POLICIES – Taxes Increase produc on cost  supply
decrease.

Subsidies  reduces cost  supply increases.

Ex – A higher excise tax on fer lizer reduces its supply

Ex – A fer lizer subsidies increase the supply of agriculture product.

6. EXPECTATION OF FUTURE PRICES – If producer expect prices to rise, they

may withhold the supply to sale later. If they expect prices to fall, they may sell
more now.

Ex – Gold dealer expec ng gold price to rising next month may reduce current
supply to profit later.

7. NATURAL AND CLIMATIC CONDITION – These mainly affect agricultural and

natural resources-based industries.
 LAW OF SUPPLY

The LOS is Introduced by ALFRED MARHAL in his book “PRINCIPLE OF

ECONOMICS” published in 1890.

Statement - “Other thing is being constant, higher the price of a commodity

more is the quan ty supply and lower its price of a commodity less is the
quan ty supplied”

Price  High Then Supply High

Other Factors remaining constant a rise in price result in a rise in quan ty

supplied and vice versa. Thus, there is direct rela onship between the price and
quan ty supplied.

Sx = f (Px)

60

50
Price of Commodity in Rs

40

30

20

10

0
100 200 300 400 500

Supply of commodity in kg

X axis shows the supply of commodi es in kg

Y axis shows Price of commodity in Rs

The slope of supply curve is upward from le to right.

 EXCEPTION OF LAW OF SUPPLY:

1. Agriculture
2. Monopoly
3. Compe on
4. Rare goods – Ar s c goods
5. Perishable goods – Jldi krb hone wale
6. Out of fashion goods
7. Auc on-able goods

Date - 12-11-25

REASON FOR LAW OF SUPPLY:

1. PROFIT MOTIVE - By profit means, when the prices of a good increases,

selling if that good becomes more profitable.

This encourages the producer to produce and offer more for sale.

Ex – If the price of wheat rises from Rs 20kg to Rs 25kg, farmers can earn more
profit per kg. They will therefore plant more wheat in the next season.

2. CHANGE IN THE USE OF RESOURCES – When the price of one product

increases producers may be diver ng resources from less profitable good to
more profit one.

Ex – If the price of co on cloth rises, tex le manufacturers use more machine

and labour to produce more co on cloth instead of woolen cloth.
3. ENTRY OF NEW FIRMS – Higher prices a ract new firms into the industry
because it becomes more profitable, this increases total supply.

Ex – If the price of solar panel increases due to rise in demand, new companies
may enter the solar energy sector to take the advantage of higher profits.
Thereby, increases in total supply.

4. EXPECTATION OF FUTURE PRICE – If a producers expect prices to rise in the

future; they may temporarily withhold the supply. Conversely, if they expect
prices to fall, they will increase the supply to avoid loss later.

EX – Gold Trader expec ng a future price fall may sell more gold now increaing
current supply.

Date – 19-11-2025

LAW TO RETURN TO SCALE

The law of return to scale explains how output changes when all inputs (factors
of input land, labour, capital) are increased in the same propor on in long run.
Since all inputs are variable in long run, firms can expand their scale of
produc on.

Return to scale measures whether output grows by more than, exactly or less
than the propor onate increases in input.
 TYPES OF RTS

1. INCREASE IN RETURN TO SCALE – when all input increase by certain

percentage and output increases by large percentage

Input incr 10%  output incr 20%

Labour (L) Capital (K) Total output % change in % change in

input output
1 1 100 100% 120%
2 2 220

2k
200 units
Capital

1k
100 Units

0 1L 2L

Labour
 CAUSES OF INCREASING RTS

Indivisibility of Inputs – Large machine can’t be used efficiently on small

scale, best used at larger scale
Technical economic - Advance machinery and automa on work be er
with large output
Specializa ons and division of labour – worker and machine do specific
task increasing produc vity
Financial economics – large firms can get loan at lower interest
Marke ng economics – Bulk purchasing reduces per unit cost

2. CONSTANT RTS
Date – 08/12/25

Market

It refers to the whole region, where buyers and sellers of a commodity are in
contact with each other to affect the purchase and sale of the commodity.

Components

 Area
 Compe on
 buyers and sellers
 Commodity

Market structure – It refers to number and type of firms opera ng in the

industry

The main factors which determine the market structure:

 Number of buyers and sellers in the market indicates the influence

exercised by them on the price of the commodity. An individual buyer or
seller is not in a posi on to influence the price. A seller can exercise
great control over the price if there is a single seller of a commodity.

Nature of the commodity – If the commodity is homogenous of nature,

iden cal in all aspect then it is sold at a uniform price. If the commodity is of
differen ate nature, then it may be sold at different prices. If the commodity
has no close subs tute, the seller can charge a higher price.
Freedom of movement of firms – If there is freedom of an entry and exist of
firms then the price will be stable in the market

If there is restric on on the entry of new firms and exist of old firms then a firm
can influence the price as it has no fear of compe on from other or new
firms.

Knowledge of market condi on – Uniforms price prevails in the market if

buyers and sellers have perfect knowledge about market condi ons.

Mobility of Goods and factors of produc on – A uniforms price prevails in the

market if factor of produc on can move freely from one place to another.

FORMS OF MARKET STRUCTURE

1. Perfect Compe on
2. Imperfect Compe on – Monopolis c compe on

Perfect Compe on

It refers to market situa on where there are very large number of buyers and
sellers dealing in a homogenous product at a price fixed by the market

In reality, PC has never existed.

Ex – Agriculture products

FEATURES OF PC

1. Very large no. of buyer and seller - No single buyer or seller can
influence the price. Each par cipant contributes a very small share of
 total demand and supply. Ex – In the wheat, one farmer’s output is so
small that it can’t influence global or na onal wheat prices.
2. Homogenous product – All firms sell iden cal perfectly subs tutable
products. Buyers only care about price since products have no
differen a on. Ex – 1 kg of rice or sugar from different farmer iden cal in
quality and appearance.
3. Free entry and exit – No barriers like patent, high capital, legal rule or
technology restric on. New firms enter when profits are high and firms
leave when profits are low.
4. Perfect knowledge – Buyers know all the prices in the market; sellers
know cost structure and technology. Ex – Farmers know the daily mandi
prices, traders know the supply level through apps and market bulle n.
5. Firms are price taker – Firms must accept the market price set by overall
demand and supply. They can’t change prices or charge higher prices or
they’ll lose customers
6. No adver sement – Since product are iden cal adver sing doesn’t help
in differen ate the product.

Date – 09/12/2025

Perfect vs Pure Compe on

Perfect compe on is used in a wider sense as compared to pure compe on,

the compe on is said to be pure compe on when the following three
fundamental condi ons exist.

1. Very large number of buyers and sellers

2. Homogeneous product
 3. Freedom of entry and exit

Perfect Compe on is a wider concept for the market to be perfectly

compe ve in addi on to 3 fundamental condi ons: 4 Addi onal condi ons
must be sa sfied.

1. Perfect knowledge among buyers and sellers

2. Perfect mobility of produc on
3. Absence of transporta on cost
4. Absence of selling cost

Monopoly – It refers to a market situa on where there is a single seller selling

a product which has no close subs tute. Ex – Railways

FEATURE OF MONOPLY

1. Single seller – Under monopoly there is single seller selling a product as

a result the monopoly firm an industry is one and a same thing and
monopolist has full control over the supply and the price of the product.
Ex – Railway, coal India
2. No close subs tute - Ex - Electricity distribu on
3. Restricted entry - There exists strong barrier to entry of new firms and
exist of existing firms. As a result, a monopoly can earn abnormal profit
and losses in the long run. These barriers may be due to legal restriction
(like licensing on patents on rights or due to restrictions created by firms
in the form cartel).
4. Price Discrimination – A monopolist may charge different prices for his
product from different sets of customers at the same time, is known as
price discrimination. It is of three types:

1. Personal Price Discrimination – the same product is sold at different

prices to different kinds of buyers

2. Place price discrimination – same product is sold at different prices in

different place

3. Used Price discrimination – same product is sold at different prices on

the basis of different uses

5. Price Maker - Firm and industry is one and same thing, so firm has
complete control over the industrial output as a result, monopolist is a
price maker and fixes its own price. The firm can influence market price
by charging the supply of the product. Ex – A city water utility company
can set water tariff because no competitor exists.

REASON FOR EMERGENCE OF MONOPOLY

1. Government Licensing – It means that before a firm can enter an

industry, It needs to take permission from government. Licensing is used
to ensure minimum standards of compe on by not gran ng licenses to
new firms government aims to ensure that only one firm operates in the
market.
2. Patent Rights – Certain big private companies are engaged in research
and development ac vi es and come up with new technologies on new
 products. As a reward for their risk and investment in research,
governments grant them patent rights.
3. Cartel – Under cartel some firms retain their individual iden es but
coordinate their output and pricing policy to act as a monopoly the firm
agree among themselves to restrict their total output to the level that
maximizes their joint profit.
4. Control on raw materials – Monopoly arises due to sole ownership or
control of certain essen al raw materials needed in a par cular industry.

Date -16-12-25

MONOPOLISTIC COMPETITION

It refers to a market situa on in which there are large number of firms which
sell closely related but differen ated products.

EX – Toothpaste

FEATURE OF MONOPOLISTIC COMEPTITION:

1. Large number of sellers: There are large numbers of firms selling closely
related products but not homogenous products. Each firm acts
independently and has a limited share of market. So individual firms
have limited control over the market price where large numbers of firms
lead to compe on in the market.
2. Product Differen a on: Each firm is in posi on to exercise some degree
of monopoly through product differen a on it refers to differently the
product on the basis of quality, features, packaging, branding style.
3. Freedom of entry and exit: It means that there are no barriers before
the firm
Date 17-12-25

DEMAND CURVE UNDER PERFECT COMPETION:

P3

PP

PP2

PQ PQ2 PQ3

In case of perfect compe on there is very large number of buyers and sellers
selling a homogenous product at price fixed by the market. Each firm is price
taker and faces a perfectly elas c demand curve.

Why Demand curve is perfectly elas c?

 Large number of sellers – No single firm can influence price

 Homogenous product – No product differen a on
 Perfect knowledge – Buyers know market price
 Free entry
DEMAND CURVE UNDER MONOPLY:

Demand curve AR (Average revenue)CURVE

A monopolis c has full freedom and power to fix the price of product in order
to increase the output to be sold. Monopolis c will have to reduce the price
and therefore monopoly will face a downward sloping demand curve.

DEMAND UNDER MONOPOLISTIC COMEPETETION:

Compe on is nega vely sloped as more quan ty can be sold Only at lower
price. It is more elas c as compared to demand curve under monopoly
because differen ated products under monopolis c compe on have close
subs tutes.

Why does the demand slopes downward?

 Product differen a on gives each firm’s monopoly power over its brand
 To sell more output a firm must lower its price
 Consumer shi to subs tute if prices rise

Hence price and quan ty are inversely related