Law of Supply

The law of supply states: When the price of a good rises, its supply by producers also rises. When the price falls, supply falls—other factors remaining unchanged.

"The law of supply states that the higher the price, the greater the quantity supplied or the lower the price, the smaller the quantity supplied." – Dooley

• “Supply” means the amount sellers are willing and able to sell at different prices.
• Price and supply move in the same direction (direct relationship).
• The rule works only when other conditions (like technology, costs, and policies) don’t change.

The schedule represents the prices and quantities offered for sale. As the price of potatoes per kg rises from ₹1 to ₹5, the quantity supplied increases from 5 to 25 kg.

“Other things being constant, the higher the price of a commodity, more is the quantity supplied; and lower the price of a commodity, less is the quantity supplied.”

In simple words: When the price rises, supply rises; when the price falls, supply falls.
There is a direct relationship between price and quantity supplied.

Symbolically:

S_x = f (P_x)

Where:

• S = Supply
• x = Commodity
• f = Function
• P = Price of the commodity

In the above figure, the OY axis measures price and the OX axis quantity supplied. The curve SS is the supply curve. It slopes upward to the right, showing expansion of supply for a rise in price.

1. Supply of Labour (Backward Bending Supply Curve)
As wages first increase, people work more. But after a certain point, more income leads to more leisure (less work), so supply of labour falls:

Imagine a farmer. When the price of wheat rises, the farmer plants and sells more wheat for higher profit. If the price falls, the farmer sells less, as there’s less profit.

• Law of supply: The Higher the price, higher the supply; lower price, lower supply (if all else stays the same).
• Exceptions: rare items, short periods, perishable goods, some labor markets.
• Supply is always shown using a schedule (table) and a curve (graph).
• Supply schedule shows price and quantity supplied in tabular form
• Assumes other factors constant
• Types: Individual and Market
• Individual supply schedule shows supply of one producer
• Market supply schedule shows total supply of all producers
• Market supply = sum of individual supplies
• Law of supply: Higher price → higher quantity supplied
• Supply curve is graphical form of supply schedule
• Price on Y-axis, quantity on X-axis
• Supply curve slopes upward
• Types: Individual supply curve and Market supply curve