 "image")
What is Law of supply?
Supply is the quantity of a commodity which is offered by a firm or a seller at a particular price during a given period of time. In other words, supply is that part of stock which is actually brought into the market for sale. A market supply refers to the quantity of a commodity that all firms are able to offer at a particular price during a given period of time.
Factors affecting supply
There are many factors affecting the supply of a commodity in the market including input costs, price of the commodity, the state of technology at a given time, taxation, prices of other goods, objective of the seller, number of firms selling the same commodity among others.
What does the law of supply state?
Law of supply expresses a relationship between the supply and price of a product. It states a direct relationship between the price of a product and its supply, if other factors remain unchanged. If the price of a product increases, sellers would prefer to increase the production of the product to earn high profits, which would automatically lead to increase in supply. Similarly, if the price of the product decreases, the suppliers would decrease the supply of the product in the market as they would wait for a rise in the price of the product in future. It indicates the direction of change in the amount supplied and it does not indicate the magnitude of change.
What are the exceptions to the law of supply
There are certain exceptions to the theory law of supply. The law will not apply if there are future expectations for further change in prices. If sellers expect further fall in prices in future, they would be ready to sell more even at low prices. For perishable goods like milk, vegetables, fish, eggs, etc. the supply is not affected by their prices. Sellers cannot hold these goods for long. Even for agricultural goods, the supply depends more on natural factors such as drought, floods, natural calamities etc. and less on their prices.
Latest Updates on Law of Supply
Premium
At a time of declining incomes, people don't have money. So they do not buy. If they don't buy, prices must fall, not increase. What, then, explains the inflation? T C A Srinivasa Raghavan explores