Law of Supply in Economics with Examples

Law of Supply

It is based on the assumption called Citrus Peri bus that is when all the other factors remain constant in the supply function only the price of the commodity increases then the supply will

Increase when the price of the commodity decreases the quantity supply also decrease.

Assumptions of the law of the supply

Following are the assumptions of the law of the supply

  1. The price of the other commodity will be constant
  2. Number of firms remaining constant
  3. Price of factor of production remain constant
  4. Technology remains a constant
  5. Expected price of commodity remain constant
  6. Govt. Policy remains constant.
  7. The goal of the firm remains constant

Law of Supply

Price ^  Quantity of supply ^
Price v  Quantity of Supply v

Why does demand curve move upward?

  • The positive relationship between price and supply will tend to be supply curve in the upward direction.
  • In the short run seller want to clear the stocks.
  • In long run new companies enter the market due to which the supply curve move upward direction.

Exceptions of the Law of Supply

  1. In the case of the agricultural products: – Supply of that products depend on the natural factors therefore supply doesn’t increase with the price.
  2. Perishable Products: – These commodities cant be store for the long period of time that why seller start selling these product as soon as possible event at the low price ex – Milk, fruits, others
  3. Rare commodity: – price cant be fixed for such type of commodity which are available in the market only during a certain period.
  4. Future Expectation: – These type of commodities prices are not confirmed due to future assumption problems.

Change in supply Curve

Basically there are 2 types of Change in the supply curve.

  1. Shifting
  2. Increase or Decrease in the supply curve

Shifting in the Supply Curve

The price will be the same but only the supply line will change that is called the shifting in the supply curve.

When there is a shift in the supply curve there is no change in price due to various factors .

shift in law od supply definpedia

The price above the graph price remains unchanged but supply curve shifting.

Increase or Decrease in the supply curve

when there will be a change in the supply curve and the price that is called the increase or decrease in the supply curve.

increase or decrease in the law of supply definepedia

In the above graph price and supply both are increasing and decreasing also that why the graph is formed like this

One response to “Law of Supply in Economics with Examples”

  1. Aman singh avatar
    Aman singh

    Thanks for sharing 🤠

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