Supply
The amount of a product per unit of time that producers are willing to sell at various given prices when all other factors are held constant is known as supply of that product.
In other words supply refers to the amount of goods that are available for selling at a unit time .
Example:- In the labour market , the supply of labour is the amount of time per week , month or year.
Law of Supply
According to the law of Supply :-
" If the other factors remains constant then the supply of commodity increase with increase in its price and vice versa."
In short law of supply is a positive relationship between quantity supplied and price.
Example:- If the price of a product decreases , the supplier would decrease the supply of the product in market as he would wait for rise in the price of the product in future.
Assumptions of law of supply
In the law of supply the term " Other things remains constant" refers to the following assumptions in the law of demand -
1- No change in the state of technology .
2- No change in the price of factors of production.
3- No change in the number of firms in the market .
4- No change in the goal of the firm .
5- No change in the seller's expectations regarding future prices.
6- No change in the tax and subsidy policy of the product.
7- No change in the price of other goods.
8- The transportation cost remains the same . In case the transportation cost reduces , then the supply would increase.
Exceptions/Limitations of Law
Of supply
The exception/ limitations of law of supply are given as-
1- Agricultural Product
2- Price expection of seller
3- Stock clearance sale
4- Fear of being out of fashion
5- Perishable goods
6- Auction sale
1- Agricultural Products:- The law of supply is not valid in case of agricultural products as the supply of these products depends on particular seasons or climatic conditions .
Thus the supply of these products can't be increased after a certain limit in spite of rise in their prices.
2- Price expection of seller:- If the saller expects that the price of commodity is going to fall in near future , he will try to sell more even if the price level is very low. On the other hand, if the seller expects further rise in price of the commodity he will not sell more even if the price level is high . It is against the law of supply.
3- Stock clearance sale:- When a seller wants to clear its old stock in order to store new goods, he may sell large quantity of goods at heavily discounted price. It is also against the law of supply.
4- Fear of being out of fashion:- If the saller thinks that the goods are going to be outdated in the near future. He sells more at a lower price which is also against the law of supply.
5- Perishable goods:- Those goods which have very short lifetime is known as perishable goods.
The seller become ready to sell his perishable goods at any offered price. Hence law of supply does not followed.
6- Auction sale :- A sale which takes place at that time when the seller is in financial crisis and need money at any cost is known as auction sale.
Then in condition of auction sale the law of supply does not apply.
Factors affecting supply
There are following mainly eight factors which can affect the supply -
1- Price
2- Cost of Production
3- Natural conditions
4- Technology
5- Price of related goods
6- Transport conditions
7- Government policies
8- Factor price & their availability
1- Price:- Price is the main factor that influences the supply of a product to a greater extent speculation about future price can also affect the supply.
2- Cost of Production:- If the cost of production of any product will increases then the supply of that product will decrease and vice versa because the cost of production is inversely proportional to supply.
3- Natural conditions:- Natural conditions refers to climatic conditions which means climatic conditions directly affects the supply of certain products like agricultural products.
4- Technology:- A better and advanced technology increases the production of a product due to which the supply of product increase.
5- Transport conditions :- Transport is always a constraints to the supply of products as the products are not available on time due to poor transport facilities.
6- Price of related goods:- The prices of substitutes and complementary goods also affect the supply of a product.
7- Government policies:- Different policies of government , such as fiscal policy and industrial policy, has a greater impact on the supply of a product.
8- Factor prices and their availability:- The inputs such as raw material , man , equipment and machines required at the time of production are termed as factors.
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