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Law Of Supply

Definition

The law of supply is a fundamental principle of economic theory which states that, 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: quantities respond in the same direction as price changes. This means that producers are willing to offer more products for sale on the market at higher prices by increasing production as a way of increasing profits.

What is the 'Law Of Supply'

The law of supply is the microeconomic law that states that, all other factors being equal, as the price of a good or service increases, the quantity of goods or services that suppliers offer will increase, and vice versa. The law of supply says that as the price of an item goes up, suppliers will attempt to maximize their profits by increasing the quantity offered for sale.

Explaining 'Law Of Supply'

The chart below depicts the law of supply using a supply curve, which is always upward sloping. A, B and C are points on the supply curve. Each point on the curve reflects a direct correlation between quantity supplied (Q) and price (P). So, at point A, the quantity supplied will be Q1 and the price will be P1, and so on.
 


Further Reading


Anomalies: The law of one price in financial markets
www.aeaweb.org [PDF]
… Physics has excellent laws, such as the law of gravity … The first law of economics is clearly the law of supply and demand, and a fine law it is … no barriers to trade, but in practice, details about market institutions are important in determining whether violations of the Law can occur …

Power laws in economics and financePower laws in economics and finance
www.annualreviews.org [PDF]
… Physics has excellent laws, such as the law of gravity … The first law of economics is clearly the law of supply and demand, and a fine law it is … no barriers to trade, but in practice, details about market institutions are important in determining whether violations of the Law can occur …

Disaggregated public spending, GDP and money supply: Evidence for ItalyDisaggregated public spending, GDP and money supply: Evidence for Italy
papers.ssrn.com [PDF]
… Physics has excellent laws, such as the law of gravity … The first law of economics is clearly the law of supply and demand, and a fine law it is … no barriers to trade, but in practice, details about market institutions are important in determining whether violations of the Law can occur …

Law and finance in transition economiesLaw and finance in transition economies
onlinelibrary.wiley.com [PDF]
… Physics has excellent laws, such as the law of gravity … The first law of economics is clearly the law of supply and demand, and a fine law it is … no barriers to trade, but in practice, details about market institutions are important in determining whether violations of the Law can occur …

Law, finance, and economic growth in ChinaLaw, finance, and economic growth in China
www.sciencedirect.com [PDF]
… Physics has excellent laws, such as the law of gravity … The first law of economics is clearly the law of supply and demand, and a fine law it is … no barriers to trade, but in practice, details about market institutions are important in determining whether violations of the Law can occur …

Responsibility in the supply chainResponsibility in the supply chain
www.oxfordhandbooks.com [PDF]
… Physics has excellent laws, such as the law of gravity … The first law of economics is clearly the law of supply and demand, and a fine law it is … no barriers to trade, but in practice, details about market institutions are important in determining whether violations of the Law can occur …

The role of tax education in supply chain management a case of Indonesian supply chain companiesThe role of tax education in supply chain management a case of Indonesian supply chain companies
yadda.icm.edu.pl [PDF]
… Physics has excellent laws, such as the law of gravity … The first law of economics is clearly the law of supply and demand, and a fine law it is … no barriers to trade, but in practice, details about market institutions are important in determining whether violations of the Law can occur …

The supply and demand of campaign finance reformThe supply and demand of campaign finance reform
heinonline.org [PDF]
… Physics has excellent laws, such as the law of gravity … The first law of economics is clearly the law of supply and demand, and a fine law it is … no barriers to trade, but in practice, details about market institutions are important in determining whether violations of the Law can occur …



Q&A About Law Of Supply


Why might we see shifts in market equilibrium prices from one period to another period even though demand has not changed over time?

We may see shifts in market equilibrium prices from one period to another period even though demand has not changed over time due to changes in technology , consumer preferences , government regulations , etc .

Where would point B be located on this curve?

Point B would be located at an intersection between Q2 and P2.

What is the law of supply?

The law of supply is the microeconomic law that states that, all other factors being equal, as the price of a good or service increases, the quantity of goods or services that suppliers offer will increase, and vice versa.

What does it mean when all other factors are equal?

All other factors must be held constant in order to measure how one variable affects another.

At what points along the supply curve will there not exist any equilibrium price for a good or service offered by suppliers?

There will not exist any equilibrium price for a good or service offered by suppliers when there is no demand for said product/service; therefore, no amount can ever sell because no one wants it .

Where would point C be located on this curve?

Point C would be located at an intersection between Q3 and P3.

What does each point along the supply curve represent?

Each point along the supply curve represents a direct correlation between quantity supplied (Q) and price (P).

Where would point A be located on this curve?

Point A would be located at an intersection between Q1 and P1.

How do you depict this relationship on a graph?

You use a supply curve which is always upward sloping.