Question

Do you agree or disagree with the following statements? Give reasons.

i. There is no difference between stock and supply.

ii. Price is the only determinant of supply.

iii. The backward slopping supply curve shown as inverse relationship between supply of labour and wage rate.

Answer 1

i. No, the above statement is not right. Stock and supply differ from each other. Stock is defined as the amount of goods that are available with the seller for sale in the market, at a given point of time, on the other hand, supply refers to the amount of goods that the seller is actually willing to offer for sale. In other words, supply is a part of stock that the seller actually offers for sale. Accordingly, the supply is less than or equal to stock.

ii. No, the above statement is not correct. Besides price, the supply of a commodity is affected by a large number of other factors. The following are some of the factors that determine supply.
1. Price of commodity
2. Price of related goods
3. Technology of production
4. Price of factors of production
5. Government policies
6. Nature of commodity
7. Goals of the firm
8. Expectation of future prices

iii. Yes, the above statement is true. The backward bending portion of labour supply curve shows an inverse relationship between the supply of labour and the wage rate. Beyond a particular wage rate, the workers start preferring leisure to work. Accordingly, as the wage rate increases they are willing to supply less labour.