Question
Explain variation in supply with the help of diagram.
✓
Answer
When quantity supplied of a commodity changes due to change in its price, other factors remaining constant, it is known as variation in supply. Variation in supply can be of two types :
(A) Expansion (or Extension) of Supply
(B) Contraction of Supply(A) Expansion (or Extension) of Supply : It refers to a rise in the quantity supplied due to an increase in price of a commodity, other factors remaining constant. Extension of supply leads to an upward movement on the same supply curve due to a rise in price as shown in the diagram :
In the above diagram, when price increases from $P$ to $P_1$, the quantity supplied rises or expands from $Q$ to $Q_1$ resulting in an upward movement from point A to point B along the same supply curve. It is known as extension of supply.
(B) Contraction of Supply : It refers to fall in quantity supplied due to fall in price, other things remaining constant. Contraction of supply leads to a downward movement on the same supply curve due to a fall in price as shown in the diagram.
In the diagram when price falls from $P_2$ to $P_1$, the quantity supplied falls or contracts from $Q_2$ to $Q_1$ resulting in a downward movement from point B to A along the same supply curve. It is known as contraction of supply.
(A) Expansion (or Extension) of Supply
(B) Contraction of Supply(A) Expansion (or Extension) of Supply : It refers to a rise in the quantity supplied due to an increase in price of a commodity, other factors remaining constant. Extension of supply leads to an upward movement on the same supply curve due to a rise in price as shown in the diagram :
In the above diagram, when price increases from $P$ to $P_1$, the quantity supplied rises or expands from $Q$ to $Q_1$ resulting in an upward movement from point A to point B along the same supply curve. It is known as extension of supply.
(B) Contraction of Supply : It refers to fall in quantity supplied due to fall in price, other things remaining constant. Contraction of supply leads to a downward movement on the same supply curve due to a fall in price as shown in the diagram.
In the diagram when price falls from $P_2$ to $P_1$, the quantity supplied falls or contracts from $Q_2$ to $Q_1$ resulting in a downward movement from point B to A along the same supply curve. It is known as contraction of supply.
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