Law of Supply

According to the law of supply, a microeconomic law that there is a direct relationship between supply and the price of a product or service. It states that other things being equal, the quantity of a product or resource available for sale by a producer or resource owner varies directly with the price of the product or resource (ceteris paribus). In other words, it is a fundamental principle of economic theory that states, keeping other factors constant, an increase in price results in an increase in quantity supplied. In other words, there is a direct relationship between price and quantity

It is important to note that supply is affected by many factors other than price, and the law of supply only applies assuming these other factors remain constant. The factors that affect supply are called determinants of supply.

Examples

There are numerous examples of economic behavior which are in conformance to this law. For example:

  • vegetable sellers will try to make available more fruits for sale when the fruit prices are high and relatively less when the prices are low
  • tailor shops will try to sew more clothes if sewing charges increased
  • banks will offer more loans if interest rates rise
  • oil-producing countries will supply more oil if the price per barrel increases and will limit the supply if the price per barrel drops

The law of supply is often presented in the form of a supply curve. Which shows the relationship between the price and the quantity supplies of a product.

The supply line has a positive slope. Which indicates that there is a direct relationship between the price of a product and the quantity supplied. As the price increases, producers and resource owners will supply more.

Law of supply formula / equation

Q=c+dP

Here Q is the quantity supplied, c is a constant, d is a coefficient, and P is the price of the good supplied.

law of supply equation
p=price of product in market if supply is y
p'=price of product in market if supply is y’
y=amount of supply of a product in market at price p
y'=amount of supply of a product in market at price p’
equation credits here

Mudassir

I love writing.

Leave a Reply

Your email address will not be published.