The Law of Supply

Introduction

The law of supply is an important law in economic theory. As said earlier, supply of a commodity depends on a large number of factors. But in the law of supply, we keep all other factors constant and change only the price of the commodity to observe its effect on quantity supplied. In other words, the law of supply explains the relation between price and quantity supplied in contrast to the law of demand which explains the relation between price and quantity demanded.

Meaning and Definition

Other thing remaining constant, when price of a commodity rises, its supply rises and when price falls, its supply also falls. This shows that price and supply are directly related.

                Symbolically the law can be put as follows

                                        S_x α P_x

                Where S_x = Supply of the commodity ‘x’

                                P_x = Price of the commodity x’

Assumptions of Law

The law of supply is based on the following fundamental assumptions

• The seller is a rational human being.

• Prices of related goods must remain constant.

• Prices of factors of production should remain constant.

• The technique of production should remain constant

• The expectations of the producer and the Gove’s policy should remain constant.

• Natural factors like climatic condition, rainfall etc. should be normal.