Definitions [1]
"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
Theorems and Laws [3]
State the law of supply.
The law of supply states that other factors being equal, the quantity of a good supplied increases with an increase in the price level and decreases with a decrease in the price level of a good.
Law of supply states the direct relationship between price and quantity supplied, keeping other factors constant.
The law of supply states that other factors being equal, the quantity of a good supplied increases with an increase in the price level and decreases with a decrease in the price level of a good.
The supply schedule below shows the positive relationship between price and quantity supplied.
| Price (in Rs) | Quantity Supplied |
| 5 | 100 |
| 10 | 200 |
| 15 | 300 |
SS is the supply curve sloping upwards. When the price increases from Rs. 5 to Rs. 15, the quantity supplied also increases from 100 units to 300 units.
Explain the law of supply.
The law of supply shows a direct relationship between the price of a good and the quantity supplied. As the price rises, the quantity supplied also increases. This scenario is represented by an upward-sloping supply curve. This happens mainly due to two reasons:
- Profit Motivation: When the price of a product goes up, the chance of earning more profit also increases (assuming other factors remain the same). This encourages producers to supply more of that product.
- Rising Production Costs: As production increases, the cost of making each additional unit (marginal cost) also rises. So, producers are willing to produce and supply more only if the price is high enough to cover these extra costs.
“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:
Sx = f (Px)
Where:
- S = Supply
- x = Commodity
- f = Function
- P = Price of the commodity
Key Points
- 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
- Shows total quantity supplied by all producers at different prices.
- Market supply = sum of individual supplies (A + B + C).
- Higher price → higher market supply.
- Market supply curve slopes upward, showing direct relationship.
