So, Before starting to understand the law of supply, it is essential to understand what supply is.
Definition of Supply
Supply can be defined as “the quantity of goods or services offered for sale at a certain price”. Simply, supply is the relationship between prices of the product and quantity supplied of that product.
The firms supply goods or services when it has technology and resources to produce it. So, the firms also want to earn the profit and plans to produce and sell the product. So, the resources, intention to earn profit and willingness to produce and sell are the must.
Example of Quantity Supplied
Suppose, 50 books are offered for sale in the market at Rs.100 each this would simply be the supply of the book. There is always a positive relationship between price and quantity supplied of a given product.
However, if the price of the book increases from 100 to 105, the quantity supplied will also increase because now the profit of the sellers has increased. So, they try to supply more of the commodity because of the increase in the price of that commodity.
Difference between Supply and Quantity Supplied
Supply refers to all the possible prices and possible quantities. That is with the increase in supply, the whole curve shifts to the right. Whereas quantity supplied is the single point of the supply curve and the increase in quantity supplied is caused by the increase in the prices of products or services.
A table that enlists all the prices and quantity supplied at those prices is called a supply schedule. So, It simply shows the relation between prices of the goods and the product available for sale in the market at those prices.
|Prices (U.S.)||Quantity Supplied (kg)|
The above table is showing the relationship between prices and quantity supplied which is called the supply schedule.
When the supply schedule is presented graphically. The graphical representation of the relationship between quantity supplied and given prices is called a supply curve.
Law of Supply Definition
The law of supply states that “other things remaining the same, the quantity supplied of a product increases due to increase in its price and vice versa”
However, we normally see the general behavior of sellers that when the price of a product increases, the supply of the product is also increased by them. This happens because the profit margin of the sellers increases. Hence, the sellers try to maximize their profit.
Law of Supply Example, Schedule, and Graph
For example, if the price of rice increases from 2 to 10 dollars. Then, the supply of the pen increases because now the profit margin of the sellers has gone up and they are encouraged to sell more at a higher price.
To understand the law of supply, we will follow this table and see the relationship between prices and quantity supplied of a good.
|Prices (U.S.)||Quantity Supplied (kg)|
From the table above, it is quite clear that when the price of the product was dollar two per kg, the quantity supplied is only 10 kg. Gradually, when the price increases from 2 to 4 dollars per kg, the quantity supplied also increases and becomes 20kg. However, a further rise in the prices from 4 to 8 per kg will cause a rise in quantity supplied, i.e., 30kg. Similarly, when the price reaches 10 per kg, the quantity also increases up to 40 kg.
So, there exists a direct relationship between the supply and prices of the product. By plotting the points on a graph we can see that the supply curve is upward sloping which shows its direct relationship between price and quantity supplied.
Assumptions of the Law of Supply
Production Technique should not change
If we improve the production technique and better methods of production reduce our cost of the product. whereas the sellers get the profit at previous prices and hence, they increase supply at the same price level and hence the law of supply doesn’t hold there. So, that is why the techniques should remain constant.
Cost of Production should not change
The cost of production should remain constant. Because with the fall in the cost of production the supply increases regardless of the price.
Exceptions to the law of supply
Goods that are perishable in nature.
Fear that fashion will expire