Category: Commerce Notes PPT

Communication is vital for any company and there are a few rules one must follow when using something as effective and instant as email. As technology has become more readily available, and businesses expand further, more and more companies and firms use email as their primary source of conveying instructions, information and ideas. 

 

However, with the convenience of such communication, one can find that there are many advantages and disadvantages of email that need to be understood before one can successfully use emails to their greatest potential. There are various advantages of email. For every carefully worded business email, there are hundreds of spam emails that many would prefer to do without. There are a few specific advantages and disadvantages of using email in business communication

 

What are the Advantages of Email? 

The main reason email is so popular is that it is easy to set up an account and even easier to maintain it. This ease of use makes it possible for anyone with a basic understanding of technology to operate it. An email account will also organise all incoming and outgoing correspondence which makes it much more manageable.

The best part about email is its instantaneous nature. While there was a time when emails were not as prompt. However, that time has long passed. Today we enjoy some of the fastest correspondence. It cuts down on the use of paper for communication and allows one the ability to reply to an email or to forward it at will. 

The key reason email was effective because of the sheer amount of time that could be saved by merely sending one as compared to other forms of correspondence. Today, emails are virtually instantaneous. Even with the advent of new forms of communication, emails are still one of the fastest modes of communication limited only by human promptness. 

While some businesses may need to buy an email server, they are usually quite inexpensive. While some businesses will need to purchase an affordable email server, most personal email accounts can be obtained without so much as a penny being spent.

As we mentioned before, not all emails are useful. A majority of emails sent today can be attributed to spam which tends to fill up an inbox with largely unnecessary information. 

Given that emails are a large part of most business communications, such forms of communication must be secure to minimise the leaking of information. Popular email servers invest a considerable sum to keep their services from being hacked.

Despite the convenience of using emails for effective communication, the disadvantages of using email in business communication must not be overlooked. There are a few areas where it isn’t as effective or valuable. 

 

Disadvantages of Email

While emails are a great way to communicate, they are not exactly the most ideal when communication is concerned. Sometimes it’s important to have in-person communication to convey certain instructions or ideas effectively. Email cannot be a substitute for such times. 

While it is acceptable for people to voice different ideas and positions via email, it is also possible that certain key pieces of information in any email could be misunderstood. This issue will only compound itself if no follow-up is carried out. 

While the email is known for near-instantaneous transmission of a message, it can also result in a significant loss of time because most employees will have to spend a majority of their time sorting through emails from different branches. It only gets worse as one moves higher up on the corporate ladder.

 

Origination and History of Email

The Internet email service that has become an important part of today’s world, can be found back in the early days of ARPANET, with specifications for encrypting email messages being published as early as 1973. (RFC 561). A basic email sent in the early 1970s looks comparable to one sent today. 

 

Ray Tomlinson is the person who is credited with inventing networked email; in 1971, he created the first system that allowed users on separate hosts on the ARPANET to send mail to others, using the @ sign to link the user name to a destination server. By the mid of 1970, this was the form that widely came to be known as email. Email at that time was most likely used by “computer geeks” in certain fields such as in the field of engineering and science.

An auction sale is the sale of goods through a bidding process and is covered under the Sale of Goods Act, 1930. The process of sale by auction involves the selling of any goods and property of value, in a public gathering where buyers make a bid for the purchase and the sale is made to the highest bidder. Let us understand in detail an auction sale, parties involved, and their rights and obligations. 

Auction of goods to the highest bidder among all buyers present at the time. Auction Sale is an economic system where sellers offer goods for sale, and bidders compete with one another, based on the price or quality of the item being offered. Auction Sales can be conducted either through oral or written bidding methods like Dutch Auction (where bids are sealed), English Auction (traditional ), and Online Auction (in which bidders bid via the internet).

Different Types of Auction Sales

1. Private Auction: This is an auction sale where the seller and buyers are known to each other.

2. Advertisement Auction: In this type of auction, the seller publishes a notice in newspapers or online about the product he wishes to sell through auction.

3. Sealed Bid Auction: In this type of auction, potential buyers send their bids to the seller in sealed envelopes. The highest bidder wins the product at the end of the bidding process.

4. Live Auction: This is an auction sale where bidders participate live either by attending physically or participating through phone or the internet.

5. Sale in lots: Auction Sale where the items are sold in lots or batches.

6. First Lot Auction: In this type of auction, each lot is sold to the highest bidder at a time.

7. Second Lot Auction: This type of Auction allows for batching of goods into two parts and then offering these as individual lots to potential buyers interested in acquiring them during an auction sale process.

8. Auction Sale of Unsold Lots: In this kind of Auction, the seller offers only those lots that he has not been able to sell in first or second lot auctions to interested bidders during an auction sale process.

Railway Auctions

Railway scrap collected from wagons, coaches, deserted rails, etc is sold by the railways through auction. Indian railways have completely switched to e-auctions since 2013.

Real Estate Foreclosure Auctions

Banks can hold a real estate foreclosure auction under the SARFAESI (Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest) Act, 2002. This allows the banks to auction repossessed or foreclosed properties to recover their losses. These properties are seized by the banks after the borrowers fail to make multiple payments towards principal and interest. A property in the early stages of foreclosure by the banks is in pre-foreclosure auction. It is a kind of notice to the borrower that the property will be auctioned if the payment is not made to the lender. This stage is considered the grace period that is given to the borrower before the foreclosure auction. 

Land Auction

In case of a land auction done by the government, the land must be sold through a public auction and the government must give a notification for the same through wide publicity. In the case of government land auctions, there is no upset price except in the case of railway relinquished lands where a minimum or upset price is fixed in consultation with the Railway Administration before the auction. 

The difference between first and second lot auctions is that while both allow bidders who have lost interest in one product category to switch over their bidding efforts towards another product category still available on offer through any remaining/unsold lots, they also bring together similar products from different categories for simultaneous availability under one roof which results in better price discovery across all types of products as well as greater choice for potential buyers.

Auction Rules and regulations vary from country to country depending on various factors like customs and practices followed by a particular society. However, it is very important for both sellers and buyers who intend to participate in an Auction Sale to learn about these rules before taking part in such bidding processes so they can make informed decisions when transacting with one another through Auction Sale online or offline channels/platforms.

Rules of Auction Sales Are

1. Sale Completion: It is one of the most important Auction Sale rules that the seller must complete the sale once a bid has been accepted. In case, he is unable to do so for any reason, he must inform all potential buyers of this before the Auction commences and also refund their money

2. Auctioneer: The Auctioneer conducts the Auction Sale by announcing each product being put up for bidding and calling for bids from interested buyers.

3. Reserve Price: This is the minimum price at which the seller is willing to sell a particular item in an auction sale. If no bidder meets or exceeds this price, then the item goes unsold.

4. Bidding Increments: In most auctions, there are predetermined bidding increments that determine how much a can increase her/his bid amount.

5. Auction Closing Time: The Auction Sale must have a definite ending time so that all interested buyers are aware of when the bidding process will end.

Section 64 of the Sale of Goods Act states the rules applicable in case of an auction sale.

When the auction involves the sale of goods in different lots, each lot of goods are covered under a separate contract of sale. 

An auction sale is deemed to be complete when the auctioneer says so. The same can be done by the fall of the hammer or any other means used to signify the completion of the sale. The bidder can withdraw the bid anytime before the completion of the sale is declared.

The seller can reserve his right to bid at the auction but he must expressly reserve this right. He can appoint an agent to bid on his behalf.

If the seller has not expressly reserved his right to bid and has not been informed about the same, he or his agent is not authorized to bid at the auction. The auctioneer is not entitled to accept any bids made by the seller or his agent if the buyer has not expressed his intent to do so.  Any sale that is in contradiction to this rule will be deemed unlawful and fraudulent by the buyer.

The goods for sale at the auction may be subject to a reserve price or an upset price. The auctioneer cannot sell goods below this price. 

In case the seller or his agent pretends to bid for the goods purposely to raise the bid price of the goods, the buyer of the goods has the right to treat the sale as void.

The property in an auction cannot be sold on credit or as per his will by the auctioneer. The auctioneer can accept a bill of exchange in an auction sale but only if it has been allowed by the seller.

Let us look at different kinds of auctions like real estate foreclosure auctions and government auctions.

In case of properties up for sale through a bank option, buyers can submit their bids through a bid form or a tender form. In some cases, competitive bidding is allowed between the buyers by the bank to raise the price of the auction property for sale. If the buyer or the winner of the bank auction does not pay the balance amount within a specified time, then the entire amount paid is forfeited by the bank.

Solved Question on Auction Sale

Q1. Can the Auctioneer Sell a Property Below the Reserve Price?

Ans: The auctioneer cannot sell a property below the reserve price or the upset price. In certain cases, however, the auctioneer can be relieved if his actions were a result of a mistake on his part.

Let us explain this with case law. 

Case Law: McManus vs Fortescue

In this case, the auctioneer had sold the property below the reserve price by mistake. The reserve price had been stated in a catalog for each lot. The auctioneer was relieved by the court as it was considered a mistake on the part of the auctioneer. 

Q2. When is the Auction Sale Said to be Complete?

Ans: An auction sale is said to be complete when the auctioneer puts down the hammer after giving the final call to the highest bidder. The auctioneer can also declare the auction sale complete in any other manner normally used in auction sales. 

Case Law: Payne vs Cave

In this case, the highest bidder withdraws his bid before the fall of the hammer of the auctioneer. Though Mr. Cave was the highest bidder, he had withdrawn his bid before the auction sale was deemed complete. He was not held liable to purchase the goods for which he had made the bid.

Introduction to Company Accounts

Company accounts are known as a summarization  of an organization’s financial activity which has been performed over a period of 12 month. They are prepared for Companies House and HM Revenue & Customs every year and consist of the Balance Sheet, the Profit and Loss Statement, and the Cash Flow Statement. (“Company Profit Sharing Accounts”) and any contributions made by an Employer under prior plans, as well as to any income and/or earnings attributable to such Company Contributions and prior plan contributions.

Basic Concept of Company Accounts for New Entrepreneurs & Purpose of Company Accounts:

Company accounts are a summary of an organization’s financial activity over 12 months. They are prepared for Companies House and HM Revenue & Customs every year and consist of the Balance Sheet, the Profit and Loss Statement, and the Cash Flow Statement.

Purpose of Company Accounts:

Company accounts are used to track the cash balance, money owed to the business, money owed to creditors, Excess, and access and the payroll paid to employees.

Company accounts are an analysis of an organization’s financial activity over a period (12 months). For showing the financial performance of a company, accounts are maintained and they are prepared in corporate accounting. 

It is a recording of the issue of shares, debentures, etc. of the company. Other routine accounts of the company are also recorded. With all these details, every year the company prepares accounts consisting of the Cash Flow Statement, the Profit and Loss Statement, and Balance Sheet. 

 

Company Accounts- Issue of Shares

The issue of shares is a process in which a company allocates new shares to the public. The company issues prospectus, receives applications and then allocates them to the public. Shares are issued either at par or a premium or a discount.  If the shares of a company are issued at a price more than the face value of the shares, the excess amount is called the premium. If the shares are issued at a price less than the face value of the share, it is called shares issued at a discount. The image below gives a clear idea of the issue of shares.

 

Company Accounts- Accounting for Share Capital

A company cannot generate its capital, which has to be necessarily collected from several persons. The persons who contributed the amount are the shareholders and the amount thus collected is the share capital of the company. The capital amount collected is kept in a “Share Capital Account”.

 

From the point of accounting, the share capital of the company is classified as (1) Authorized Capital, (2) Issued Capital, (3) Subscribed Capital, (4) Called up Capital, (5) Paid-up Capital,  (6) uncalled capital, and (7) Reserve Capital.

 

The issue of ordinary shares is accounted for by allocating the proceeds under (1) Share Capital Account and (2) Share Premium Account. All the money received along with the application is deposited with a scheduled bank in a separate account as above opened for the purpose.

 

Company Accounts– Notes

Company accounts are a consolidation of a company’s financial activities for one year. It consists of the Cash Flow Statement, Balance Sheet, and Profit & Loss Account. 

 

The Cash Flow Statement reveals the movement of cash in and out of the business over the financial year. There are three categories in the cash flow statement. One is Operating activities, which reveals the amount of cash that came from the sales of goods and services less the amount needed to sell goods/ services. The second one is Investing activities, which shows the amount of cash spent on capital expenditure. And, the third one is Financing activities, which shows the amount of cash spent on outside financing. 

 

The Balance Sheet of a company gives an insight into the assets, liabilities, and shareholders’ equity at a specific point in time. It indicates the financial health of the company.

 

In a Profit & Loss Account, we can see the details of the revenues and expenses of business throughout the financial year. It differs from the balance sheet as it records performance over some time rather than a snapshot. 

Employees, customer demands and expectations, supply and demand, management, clients, suppliers, owners, government actions, technological innovation, social trends, market trends, economic changes, and so on are all included in the definition of the business environment. These factors have an impact on how business functions and operates, either directly or indirectly. The Environment and position of corporations or business organisations are influenced by the sum of these elements.

The business Environment aids in the identification of business prospects, the utilisation of valuable resources, planning, and the overall performance, growth, and profitability of the company. MicroEnvironments and macro Environments are two different sorts of business Environments.

Business Environment- Introduction

The most crucial part of any firm is its Environment. Suppliers, competitors, the media, the government, customers, economic conditions, investors, and a variety of other external entities make up the business environment. So let us begin by learning about the business environment and its importance.

The type of company organisation depends on a variety of factors, including the nature of the firm, the extent of activities, and many others. 

We hear terms like small businesses, big enterprises, and international corporations on a regular basis. These concepts are simply a way of describing business scales. 

Business industries, like every other industry, have seen major changes in the way they work overtime. 

Business Environment signifies the collection of individuals, entities and several significant internal and external factors which control the productivity and performance of a business. 

An Environment determines the growth, profitability and even longevity of a business and gets altered by them as well. These factors influence the operations of a company directly or indirectly depending on its type. 

An awareness of the business Environment helps businesses in assessing opportunities, assists in planning and the overall growth of an organisation. 

Components of Business Environment

Dimensions of Business Environment

The dimension of the business Environment refers to the sum of all factors, enterprises and forces which constitute direct or indirect influence over Business activities. Such five key elements are listed below. 

1. Social Environment 

It implies the tradition, culture, customs, values of a society in which the business exists. 

• Tradition: In India, festivals like Diwali, Christmas, Holi, etc. make provision for a financial opportunity for several market segments like sweet manufacturers, gifting products suppliers, etc. 

• Value: A company that follows long-held values like social justice, freedom, equal opportunities, gender equality, etc., excels in that given society.

• Recurrent Trends: It refers to development or general changes in a society like consumption habits, fitness awareness, and literacy rate, etc. which influence a business. For example, the demand for organic vegetables and gluten-free food is increasing; therefore, companies which manufacture food items keep this in mind attract more crowds. 

2. Legal Environment 

It includes the laws, rules, regulations, acts passed by the government. A company has to operate by abiding by the rule and regulations of laws like the Consumer Protection Act 1986, Companies Act 1956, etc. A proper understanding of these laws assists in the smooth operations of a company. 

Example: A cigarette-selling company compulsorily has to put the slogan “smoking is injurious to health” on every packaging.   

3. Economic Environment 

It involves market conditions, consumer’s need, interest rate, inflation rate, economic policies, etc. 

• Interest Rate- For example, interest rates of fixed-income instruments prevalent in an economic Environment impacts the interest rate it will offer on its debentures.

• Inflation Rate- A rise in inflation rate leads to price – hike; hence it poses limitations to businesses. 

• Customer’s Income- If the income of customers increases, the demand for goods and services will rise too. 

• Economic Policies- Policies like corporate tax rate, export duty and import duty influence a business.

4. Political Environment 

It consists of forces like the government’s attitudes towards businesses, ease-of-doing-business policies, the stability of the governing body and peace within the country. All of these factors are extremely crucial for a company to sustain. If the central, as well as local government sanctions, policies or acts in favour of businesses, the overall economy of the nation strengthens due to increasing employment, productivity and import and export of various products. 

Example – A pro-business government will make foreign investments more attractive in that country.   

5. Technological Environment

It comprises the knowledge of the latest technological advancements and scientific innovations to improve the quality and relevance of goods and services. A company that keeps track of this news regularly can mould their business strategies accordingly. 

Example: A Watch Company that sells smartwatches along with traditional watches will prosper as smartwatches are trendy recently. 

Solved Questions for you

1. ____________ consists of economic conditions, economic policies, industrial policies and economic systems.

• Business Environment

• Economic Environment

• Natural Environment

• None of the above

Ans. b) 

2. External Environment of business is 

• Physical

• Demographic

• Economic

• All of these

Ans. d)

 

What is the International Business Environment?

The changing dimension of the business Environment gives birth to an advanced international Environment for companies in a country. It denotes a periphery in which international companies run their business transactions across national borders. There are multiple dimensions of the international business Environment concerning cultural differences, exchange risks, taxation and legal issues. It is also known as Globalisation.

 

Since this Environment lets companies exchange goods and services with other countries, the management team must have a sound knowledge about their operational market. 

Importance of Business Environment

• Identifies business opportunities and possible threats

• Helps in growing a business

• Provides scope for learning

• Efficiently tackles competitions

• Aids in building a brand image

Environment plays a determining role in establishing a good performing company. Hence, learning all the essential dimensions of business Environment class 12 is a must to achieve a firm grip on business studies. To know more about this topic and other allied topics of business studies, check out ’s website today. 

This article discusses “what is a Capitalist Economy with an example” in detail. First of all, let us have a brief of what is meant by capitalism. All the farms, factories and other sources of production fall under the territory of private individuals and firms in capitalism. Those private individuals and firms are free to use them with the intent to make a profit. The desire to gain profit is the only consideration with the property owners in the use of their property. Various economists gave the capitalist economy definition. Under capitalism, everybody’s free to take up any line of products as per their wish and is entitled to enter into any contract with the intent to gain profit.

 

What is the Capitalist Economy?

The capitalist economy is related to a type of economic environment where competition, ownership of property and free enterprise systems prevail. The definition depicts the features of capitalism. Prof. Loucks highlighted the capitalist economy definition as a system characterized by private ownership and the use of profit of artificial and nature-made capital. The capitalist economy is said to be a liberal economy because the free market determines the demand, supply and price of the market. There is no direct interference of the government in this economy. Some classic examples of capitalist economies are the U.S.A., U.K., Germany, and Singapore.

 

Capitalism is also called a free market economy and has become a very dominant form of economic system post-breakup of feudalistic society. Most of the western countries follow this kind of economic system which is dominated by the free market, private property and production, distribution controlled by free and open markets. Another very important motive of capitalism is profit-making. According to the economist and thinker, Adam Smith, this form of economic system is dependent on buying and selling goods out of mutual interest. In this economic system, capital is invested by the people with surplus resources, factories, transport etc, are controlled by them and the profit accrued out of the business goes to the capitalists and the people who were involved in the production process gets either wages or salaries depending upon their work. 

 

Pillars of the Capitalist Economy:

• People have ownership over tangible items like land, buildings, cars, houses and also own intangible items like bonds and shares, hence, private property is one of the pillars of capitalism

• Every individual acts according to their self-interest and considers their profit. The overall benefit for the society as a whole happens only with the help of the “invisible hand”.

• The market has many people selling the same goods. There is tough competition in the market to retain the customers and the customers will also get many options to choose from. 

 

Capitalism is crucial for a developing country like India. An example of a capitalist economy regarding its importance is as follows:

1. Equality- the main principle of the capitalist economy is that everyone has equal rights, and the harder you work, the more profit you will get.

2. Freedom- The essence of classic capitalism is the freedom to choose things to do.

3. Innovation- Research and development of new ways to gain profit is the motive of a market capitalist economy.

4. Efficiency- In capitalism, an incentive is given for out of box thinking and for efficient production of goods.

 

Reliance Jio is a classic example of a capitalist economy done right. Before the introduction of Jio, internet packs used to be expensive. Now healthy competition in the market capitalist economy brought a change that can be seen post the Jio was introduced.

 

The capitalist economy definition depends on practical application, not a mere theory.

 

Features of the Capitalist Economy

The main features of the capitalist economy are as follows-

1. Existence of private property

2. Freedom of ownership

3. Working on the price mechanism

4. Desire to earn profit

5. Free competition and cooperation go together (Refer capitalist economy definition)

6. Sovereignty of consumer

7. Gives birth to class-conflicts

8. The role of an entrepreneur- Entrepreneurs are the pillars of the market capitalist economy.

To give another example of the capitalist economy and its importance is that it has become a dominant economic system in all countries around the globe after the disintegration of the Soviet Union.

 

There are various merits and demerits of the capitalist economy. 

 

Merits of the Capitalist Economy

The merits of the capitalist economy are as follows:

1. If the production of goods is as per the taste and preferences of the consumer, it leads to maximum satisfaction.

2. In the market capitalist economy, people possess the right to own property and to pass it on to their successors. It leads to a higher rate of the economy and more economic growth.

3. There is absolute economic freedom that means freedom to choose occupation and enterprise.

4. As per the availability of resources, the optimum utilization of goods is to be done.

5. The customer tends to find the products at the minimum cost available. Hence, the object of a market capitalist economy is the efficient production of goods and services.

6. A free-market economy provides a variety of goods to consumers.

7. The merit of a capitalist economy is that it provides flexibility in the market.

8. It motivates the entrepreneurs to take risks and to adopt bold schemes.

Different perspectives have been adopted by economists, political economists and historians in their analysis of capitalism and recognized practice of various forms. Examples of the capitalist economy are laissez-faire (free-market capitalism), welfare capitalism and state capitalism. 

 

The Demerits of the Capitalist Economy

The demerits of the capitalist economy are as follows:

1. Unequal distribution of income

2. Poor get poorer and the rich get richer- class struggle

3. High social costs

4. Unwanted multiplicity and way too much competition

5. Unsteadiness of capitalist economy

6. The situation of unemployment and under-employment

7. Slow development

8. Causes exploitation of workers in a lack of right to bargaining 

 

Did you know?

The policy of LAISSEZ-FAIRE (no interference by the state in economic matters), brought by the Great Depression of the 1930s, ended in most countries, and for a time, created sympathy for socialism among intellectuals, writers, artists, and, especially in western Europe, workers and middle-class professionals.

Before talking about the change in supply or knowing the change in supply definition, we must first know what supply is. In Economics, the Supply of a commodity refers to the amount of the commodity which is made available to consumers at a particular point in time. While, the increase and decrease of supply is known as the ‘change in supply’. But why do the changes occur? Does it effect any economic scenario? 

We will know all about this in this study. Tune in and let us dive in together starting from the revision of supply. 

Definition of Supply

Supply refers to a concept in Economics which means the amount of commodity that is made available to the consumers at a particular point of time. Supply has a relation with a price like demand, but unlike demand, the supply of a commodity increases when price increases, other things remaining constant. Other factors also contribute to bringing about a change in the supply of a commodity. The supply is determined by various factors like price, utility and preferences of the consumers. Now let us move on to understanding the concept of change in supply.

Change in Supply – The Definition 

The change in Supply is defined as an increase or decrease in the Supply of a commodity caused by various related factors. The change in supply definition is the increase or decrease in supply owing to various factors. Change in supply may be caused by the price of related goods, tastes, income and consumer preferences. This is what causes a change in supply. 

A change in supply may occur because of the introduction of new technologies, the introduction of new and efficient methods of production, and an increase in competition in the market. Graphically change in supply brings about a shift in the supply curve. This is, in brief, the change in supply definition.

What Causes Change in Supply?

Now that we know what is the change in supply, let us look at a few primary factors that cause supply to change. There is a consensus among economists that there are various primary factors that cause supply to change. These include technology, the price of raw materials, seller expectations, number of sellers in the market and prices of other commodities.

For example, when the introduction of a new technology reduces the cost of production of a commodity as per the law of supply, the output of the commodity would increase. If the overall supply of the commodity also increases in the market, the prices would fall, demands increase, and subsequently causing an increase in supply. 

Increase in Supply

An increase in supply refers to the increase in supply at the same price or in other words, a rightward shift of the supply curve. Various factors cause an increase in supply. If the cost of production decreases, it becomes cheaper for the producers to produce a particular good and hence to make more profit supply increases. 

Technological progress also reduces the production cost causing the supply to increase. Taxation and subsidy would also influence the supply of a good. Reduction in taxes and an increase in subsidies cause the production cost to fall and the supply to increase. 

Decrease in Supply 

The decrease in supply is the complete opposite situation. A decrease in supply refers to a fall in supply at the same price or the leftward shift of the supply curve. Various factors may cause a decrease in supply. 

• First and foremost, an increase in the production cost would make it more costly for the producers to produce, causing a decrease in supply. 

• When the producers refuse to adopt new technology, their cost of production increases and this causes a decrease in supply. 

• When taxes are increased, and subsidies reduced, it causes the supply to decrease owing to an increase in the cost of production. 

• When supply decreases, there is excess demand in the market, which causes an increase in prices of goods and services and an eventual fall in demand in accordance with the law of demand. The change continues until a new equilibrium is established in the market.

What are the Factors Behind it?

The Factors:

Some of the factors affecting change in supply are the prices of related products, income and spending habits of customers, and tastes and preferences of the consumers themselves.

Reasons for Change in Supply

Change in Supply can be caused due to changes in technology, machinery usage or development of better and efficient methods of production. An increase in competition in the market also affects Supply. Changes in the price of raw materials or other inputs of production affect Supply. Seller expectations also affect Supply. 

The future expectation of prices also affects Supply immensely. If it is expected that prices of a commodity will fall in the future, the demand for the commodity will fall which will result in falling production and Supply of the commodity. Similarly, if the prices are expected to rise, the demand for the commodity will increase causing pressure on the Supply of the commodity in the present.

Supply Pattern Changes

Supply can increase or decrease depending on various factors discussed above. Let us understand the concepts of increase and decrease in Supply.

Changes in Supply continue till equilibrium is reached. To get more information on the changes in supply, visit ‘s website where you can get free study material, questions and solutions, and a lot more. 

Did You Know?

Supply is very commonly associated with demand in Economics and forms a fundamental concept and principle of economics. Concepts of supply and demand in Modern Economics have been postulated by John Locke and also used by economist Adam Smith in his book ‘An enquiry into the nature and causes of the wealth of nations’ which was published in the year 1776. 

Alfred Marshall, in 1890 popularised the use of demand and supply curve in his book ‘principles of economics. The United Kingdom (then Britain) happens to be the first country that used the concepts of demand and supply as well as Economics in general. 

Solved Examples

1. What is the change in supply?

Answer: Change in supply refers to an increase or decrease of supply at the same price, causing a rightward or leftward shift in the supply curve respectively.