LAW OF SUPPLY

LAW OF SUPPLY

This refers to the relationship of quantity supplied of a good with one or more related variables which have an influence on the supply of the good. Normally, supply is related with price but it can be related with the type of technology used, scale of operations etc.

The law of supply can be stated as: Other things remaining constant, the quantity of a good produced and ouered for sale will increase as the price of the good rises and decrease as the price falls.

This law is based upon common sense, because the higher the price of the good, the greater the profits that can be earned and thus greater the incentives to produce the good and ouer it for sale. The law is known to be correct in a large number of cases. There is an exception however. If we take the supply of labour at very high wages, we may find that the supply of labour has decreased instead of increasing. Thus, the behaviour of supply depends upon the phenomenon considered and the degree of possible adjustment in supply.

The behaviour of supply is also auected by the time taken into consideration. In the short run, it may not be easy to increase supply, but in the long run supply can be easily adjusted in response to changes in price.

The law of supply can be explained through a supply schedule and a supply curve. A supply schedule is the tabular presentation of the law of supply. It shows the diuerent prices of a commodity and the corresponding quantities that suppliers are willing to ouer for sale. Consider the following hypothetical supply schedule of good X.

Table 9 : Supply Schedule of Good‘X’ 

Price (`) (per kg)	Quantity supplied (kg)
1	5
2	35
3	45
4	55
5	65

The table shows the quantities of good X that would be produced and ouered for sale at a number of alternative prices. At ` 1, for example, 5 kilograms of good X are ouered for sale and at ` 3 per kg. 45 kg. would be forthcoming.
We can now plot the data from Table 9 on a graph. In Figure 19, price is plotted on the vertical axis and quantity on the horizontal axis, and various price-quantity combinations of the schedule 9 are plotted.

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