DIFFERENCE BETWEEN SUPPLY AND STOCK

SUPPLY

     Supply is the quantity of output brought for sale in the market at a certain price, e.g. supply of rice is 1000 kg and is being sold in the market at Rs. 40 per kg.

DIFFERENCE BETWEEN SUPPLY AND STOCK:

    Stock is the quantity of output which a seller/business has with him and has not yet been brought for sale: where supply is the quantity of output brought from the existing stock of sale at a certain price in the market.

e.g.   (i) stock = 1000 kg of rice

        (ii) supply = 200 kg for sale at Rs. 40 per kg.

SUPPLY AND RESERVE PRICE:

         Reserve price is the “secret price” know only to the seller or businessman below which he will not be prepared to sell under in circumstances. In other words, we can call it a limit, and the seller will not settle for less than this. No matter what the situation maybe, the seller will not reduce the price of the commodity lower than the reserve price.

DETERMINATIONS OF RESERVE PRICE:

        i.            NATURE OF THE PRODUCT: in case of perishable products, e.g. food etc. the reserve price has got to be low. This is because that they must be disposed of quickly. However, in case of durable products, e.g. electrical goods etc. the reserve price cam be high, because their supply can be stocked up.

      ii.            EXPENDITURE OF STOCK:  sometime, the producer has own warehouse to keep his stock. But there are time when he might have to get one on rent to keep his stock. Therefore, he has to incur some expenditure on his stock.

          In the former case, his stock of durable goods will enable him to put his reserve price high.

    iii.            FUTURE PRICE: If the producer feels that the price of his product will achieve a higher level in the future, he will put his reserve price actually high and vice-versa, so as to get as much profit as possible.

    iv.            COST OF PRODUCTION:  If the marginal cost of production is high, the average cost will be high and therefore, the price of the product will also be high. In order to avoid a great final loss, the producer will keep the reserve price high and vice-versa.

      v.            Liquidity preference: if the producer decides that he needs money quickly for one reason or the other, he will keep the reserve price low as this enable him to dispose off the stock quickly and vice-versa.

    vi.            ARRIVAL OF FRESH SUPPLY: If the arrival of fresh supply is expected quickly, e,g. agricultural products, the reserve price has got to be low, and in case of durable goods, it is generally high.

  vii.            MARKET SITUATION: If there were to be competition among the producers in the market as to who would be able to sell more, then the reserve price will be low. However, if there were to be monopoly, naturally, the reserve price would be high because consumers would have no other alternative.

LAW OF SUPPLY:

            The law of supply states that, other factors remaining constant, when the price of a particular commodity rises, its quantitative supply (Qs) I,e. the quantity supplied for sale, also rises and vice-versa. In short, Qs = f (p).

Price per kg (Rs)	Quantity supplied (kg)
4	40
8	80
12	120
16	160

   supply curve

           From the table and diagram we can see how the law of supply operates. When the price of the commodity is Rs.4 quantitative supply of it will be 40 kg. as the price gradually increases until it quantity supplied also increases to 160 kg. as the price gradually increases that…. As price goes up, Qs. Also goes up.