Such as when the price of rice is Rs 14/ kg the supply of rice is 9/Kg and as the price rise to Rs 15/kg the supply also increases to 10/kg. The law thus suggests that the supply varies directly with the change in price. Therefore, both price and supply moves in the same direction. Similarly, if the price of the product decreases, the supplier would decrease the supply of the product in the market as he/ she would wait for a rise in the price of the product in the future. The cost of all factors of production does not change over a period of time. The tastes and preferences of buyers remain unchanged. The law of supply is a fundamental principle of economic theory which states that, keeping other factors constant, an increase in price results in an increase in quantity supplied. Here, “other things” are the factors that influence the supply of the commodity such as technology, input prices, price of related products, nature and size of the industry, government policy, etc. Law of Supply Example. Want’s to learn and grow online. According to the law of supply, the quantity supplied increases with a rise in the price of a product and vice versa while other factors are constant. law of supply works on certain assumptions, Marketing Concept: 5 Philosophy of Marketing Management, Human Resources Information System (HRIS), Difference Between Micro and Macro Economics, Factors Affecting Price Elasticity of Demand, Economies of scale and Diseconomies of Scale. This means that producers are willing to offer more of a product for sale on the market at higher prices by increasing production as a way of increasing profits.[2]. Let us discuss important exceptions to the law of supply in detail. The law of supply can be explained through a supply schedule and a supply curve. What does Law of supply mean? [1] In other words, there is a direct relationship between price and quantity: quantities respond in the same direction as price changes. Message Now. Thus for example if p > p' then y > y' . Tell us what you think about our article on Law of Supply | Business Economics in the comments section. The exception to the law of supply is represented on the regressive supply curve or backward sloping curve. Save my name, email, and website in this browser for the next time I comment. In case of these goods, a rise or fall in price does not impact the supply. The law of supply is a fundamental principle of economic theory which states that, keeping other factors constant, an increase in price results in an increase in quantity supplied. Thus, the production of agricultural products cannot be increased beyond a limit. Geektonight is a vision to provide free and easy education to students or anyone on the Internet who wants to learn about marketing, business and computer science etc. For instance, if the price of wheat rises and is expected to increase further in the next few months, sellers may not increase supply and store huge quantities in the hope of achieving profits at the time of a price rise. Definition: The Law of Supply posits that there is a positive relationship between the supply of a commodity and its price, such that the supply of the commodity increases with the increase in its price and decreases with the fall in its price, other things remaining constant. SS’ is the upward sloping supply curve, which depicts the law of supply, i.e. Expectations of producers and the government policy do not change over time. The law of supply states that the relationship between price and supply of a product. In such cases, the supply of a product falls with the increase in the price of a product at a particular point of time. Read: Movement and Shift along Supply Curve. Therefore, even a rise in price cannot increase the supply of these products beyond a limit. A hypothetical daily supply schedule of rice is given below: The law of supply is well substantiated through the table above, which shows that the supply of rice increases with the increase in the price.