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
- The price of the other commodity will be constant
- Number of firms remaining constant
- Price of factor of production remain constant
- Technology remains a constant
- Expected price of commodity remain constant
- Govt. Policy remains constant.
- The goal of the firm remains constant
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
- In the case of the agricultural products: – Supply of that products depend on the natural factors therefore supply doesn’t increase with the price.
- 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
- Rare commodity: – price cant be fixed for such type of commodity which are available in the market only during a certain period.
- 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.
- 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 .
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.
In the above graph price and supply both are increasing and decreasing also that why the graph is formed like this