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.
Law Of Supply
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]
- Power laws in economics and finance – www.annualreviews.org [PDF]
- Disaggregated public spending, GDP and money supply: Evidence for Italy – papers.ssrn.com [PDF]
- Law and finance in transition economies – onlinelibrary.wiley.com [PDF]
- Law, finance, and economic growth in China – www.sciencedirect.com [PDF]
- Responsibility in the supply chain – www.oxfordhandbooks.com [PDF]
- The role of tax education in supply chain management a case of Indonesian supply chain companies – yadda.icm.edu.pl [PDF]
- The supply and demand of campaign finance reform – heinonline.org [PDF]
