Question

What are the Supply Function and its assumptions?

Answer 1

The supply of a commodity depends on factors such as the price of the commodity, price of labour, price of capital, the state of technology, number of firms, prices of related goods, and future price expectations, and so on. Mathematically the supply function is Q_S = f(P_x, P_r, P_f, T, O, E)

Where Q_S = Quantity supplied of x commodity
P_x = Price of x Commodity
P_r = Price of related goods
P_f = Price of factors of production
T = Technology
O = Objective of the producer
E = Expected Price of the commodity.

Assumptions:
Law of Supply is based on the following assumptions.

1. There is no change in the prices of factors of production
2. There is no change in price of capital goods
3. Natural resources and their availability remain the same
4. Prices of substitutes are constant
5. There is no change in technology
6. Climate remains unchanged
7. Political situations remain unchanged
8. There is no change in tax policy