Law of supply is defined as “Other things remain same, quantity supplied increase with the increase in price and decrease due to the decrease in price”
As in market it is observed that there is direct and positive relationship between price and supply of the good i.e. more supply at higher price of good.
Explanation through the Table:
Law of supply can be explained through the following table:
The above table shows the price and the quantity supplied of a good in market. As we can see as long the price of the product or good tends to increase its quantity supplied is also increasing continuously. Well if we move from downward to upward in the table the continuous fall in price will cause the quantity supplied decrease.
The law will be proved true if following assumptions are kept:
No Change in the Cost of Production:
It is assumed that the cost of production must not change or remain constant, because if the cost of the production rises it will cause the supply to fall at the same price.
No Change in the Price of Machines:
The price of the machines which are in the use of production of a good must remains constant. Increase in these prices will cause the quantity supply to fall at same price.
No Discovery of Natural Resources:
The discovery of the new natural resources will create a cheaper resource of such good which will affect the supply of that good.
No Government Restriction:
The production of good should be totally allowed and there should be no restriction from the government to produce such good.
The weather conditions of the production area should remain perfect. No natural calamity should occur in that area.
There are few limitations of the law which are described as follows:
Intensive Need of Cash:
If the producer or seller badly need the cash he/she may increase the supply of a good even the price is low.
If the seller has to migrate from one place to another he/she may stop the supply even if the price is high.
The uncertain conditions can affect the supply of the good. E.g. death of a close relative, an accident etc.