Coupon Accepted Successfully!


Law of Supply

The law of supply explains the functional relationship between price of a commodity and its quantity supplied. It states that: Other things being equal (ceteris paribus), the quantity of a good produced and offered for sale will increase as the price of the good rises and decrease as the price falls.



If the price of wheat increases in comparison to sugarcane, producers would produce more of wheat as compared to sugarcanes.

This shows that there is a direct relationship between price and quantity supplied.

Assumptions of the law of the supply

The law of supply holds good provided:
  • Price of the related goods is not changed
  • ƒNo change in technology
  • ƒCost of production to be constant
  • ƒGovernment policy should remain same

Exceptions to the law of supply

  • In the short run, if there is an expectation of a fall in price, sellers will sell more to clear their stocks
  • ƒOver the long run, supply is influenced by changes in technology that reads to changes in cost
  • ƒSupply is also influenced by changes in tastes, habits, fashion, weather, etc.
  • ƒIn case of labour services, a rise in price after a certain level will lead to a fall in its supply. When their wages rise to a certain level, they feel satisfied and thus prefer more leisure. This leads them to work lesser than before

Test Your Skills Now!
Take a Quiz now
Reviewer Name