The Law of Supply and the Supply Curve

It is assumed that transport facilities and transport costs are unchanged. Otherwise, a reduction in transport cost implies lowering the cost of production, so that more would be supplied even at a lower price. It describes seller’s supply behaviour under given conditions. It has been observed that usually sellers are willing to supply more with a rise in prices. If the size of the market increases, then it is quite likely that there will be an increase in the number of firms in the market. With more sellers now participating in the market, this tends to increase S overall.

Expectation of change in prices

In plain terms, this law means that as the price of an item goes up, suppliers will attempt to maximize their profits by increasing the number of that item that they sell. The law of exception is not applicable to agricultural products. The production of these products is dependent on so many factors which are uncontrollable, such as climate and availability of fertile land. To understand the law of supply, it is important to discuss the concepts of demand schedule and demand curve.

Supply schedule shows a tabular representation of law of supply. It presents the different quantities of a product that a seller is willing to sell at different price levels of that product. 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, while other factors are kept constant.

No change in tax policy

1. Its enduring relevance underscores its significance in economics and its role in shaping our economic choices and outcomes.
2. This might seem like an unexpected one, but think about it—over time, firms can increase capacity (i.e. of production or providing a service).
3. 9.3, supply curve SS slope upwards from left to right, indicating direct relationship between price and quantity supplied.
4. As the price increases from Rs.10 per kg to Rs.20 per kg and then to Rs.30 per kg, the quantity supplied by the seller also increases from 1 kg to 2 kg and then to 3 kg respectively.

If the seller expects that the price of commodity is going to fall in near future, he will try to sell more even if the price level is very low. On the other hand, if the seller expects further rise in price of the commodity he will not sell more even if the price level is high. Further rise in price to Rs.40 and then to Rs.50 per kg results in increase in quantity supplied by the seller to 4kg and then to 5kg. Thus, the above schedule shows that there is positive relationship in between price and quantity supplied of a commodity. If there are any major advancements in technology, then production becomes more efficient and the cost of production almost certainly decreases. For example, USB flash drives began with a storage capacity of 8 MB.

Size of the market

The price decline in turn served as a powerful signal to suppliers to curb gasoline production. Crude oil prices in 2022 then provided producers with additional incentive to boost output. Also called a market-clearing price, the equilibrium price is that at which demand matches supply, producing a market equilibrium that’s acceptable to buyers and sellers. These are typically low-priced staples also known as inferior goods.

If the cost of production increases along with the rise in the price of product, the sellers will not find it worthwhile to produce more and supply more. Therefore, the law of supply will be valid only if the cost of production remains constant. It implies that the factor prices such as wages, interest, rent etc., are also unchanged. The law assumptions of law of supply of supply states that, other things remaining the same, the quantity supplied of a commodity is directly or positively related to its price. Thus, the supply curve of a commodity slopes upward from left to right.

Economists have studied the behaviour of both buyers and sellers. They have discovered the law of supply as a result of their findings. The law of supply describes the relationship between price and amount supplied when all other variables remain constant (ceteris paribus). As we know that quantity supplied of a commodity is affected by fashion, taste and preferences of the consumer, technology and time. If the seller thinks that the goods are going to be outdated in the near future, he sells more at a lower price which is also against the law of supply.

This law can be explained with the help of a supply schedule as well as by a supply curve based on an imaginary figures and data. Multiple factors affect markets on both a microeconomic and a macroeconomic level. Supply and demand guide market behavior but do not determine it. Supply and demand are important factors, and Adam Smith referred to them as the invisible hand that guides a free market. Conversely, if the taxes on output in the country are low and the government encourages the import of foreign commodities, then the supply can be increased easily. Losses occur whenever consumers pay for a good less than the alternative goods that could be produced with the same resources.