Question

With the help of a diagram state whether supply of a good is directly or inversely related to price?

Answer 1

The law of supply states that the supply of a good changes directly with its price, other factors influencing supply, remaining unchanged. This can be explained with the help of a diagram.

In the diagram, quantity supplied is measured on the x-axis and price along the y-axis. We find that at price OP, quantity supplied is OQ. At a higher price of OP₁, the firm is willing to sell OP₁ quantity of the good. And at a price lower than OP say OP₂, the firm is willing to supply only lesser quantity i.e. OQ₂.