Law of Supply ppt

1. Principle of Economics
AEAB
Topic- Law Of Supply

2. BY-
KISHLAY RANJAN
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3. Law Of Supply
Definition
The law of supply and demand is a theory that explains the interaction between the
sellers of a resource and the buyers for that resource. The theory defines what effect
the relationship between the price of the product the willingness people to either buy or
sell the product.
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4. THE LAW OF SUPPLY
Law of supply states that other things remaining the same, the quantity
of any commodity that firms will produce and offer for sale rises with
rise in price and falls with fall in price.’ i.e. Higher the price, higher will
be quantity supplied and lower the price smaller will be quantity
supplied.
‘Other things remaining the same’ means determinants other than own
price such as technology, goals of the firm, government policy, price of
related goods etc. should not change.

5. “
Supply always comes on the
heels of demand.
- Robert Collier
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6. KEY TAKEAWAYS
● The law of supply says that a higher price will induce producers to
supply a higher quantity to the market.
● Supply in a market can be depicted as an upward sloping supply curve
that shows how the quantity supplied will respond to various prices
over a period of time.
● Because businesses seek to increase revenue, when they expect to
receive a higher price, they will produce more.
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7. Assumptions of the Law of Supply
• There is no change in the prices of the factors of production.
• There is no change in the technique of production.
• There is no change in the goal of firm.
• There is no change in the prices of related goods.
• Producers do not expect change in the price of the commodity in the near
future.
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8. Exceptions to the Law of Supply
• The law of supply does not apply strictly to agricultural products whose supply is
governed by natural factors. If due to natural calamities, there is fall in the
production of wheat, then its supply will not increase, however high the price
may
be.
• Supply of goods having social distinction will remain limited even if their price
tends to rise.
• Seller may be willing to sell more units of a perishable commodity at a lower
price.
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9. Big concept
With a rise in price, the tendency is to increase
supply because there is now more profit to be
earned.
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10. Law of Supply formula
QxS = QxS = Φ (Px)
Where:
● QxS – Quantity supplied of
commodity/good x by the
producers
● Φ – Function of
● Px – Price of commodity/good x
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11. Understanding the Law Of Supply
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The chart below depicts the law of
supply using a supply curve, which is
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.

12. The supply curve is upward sloping because, over time, suppliers can choose how much of their
goods to produce and later bring to market. At any given point in time however, the supply that
sellers bring to market is fixed, and sellers simply face a decision to either sell or withhold their
stock from a sale; consumer demand sets the price and sellers can only charge what the market
will bear. If consumer demand rises over time, the price will rise, and suppliers can choose
devoted new resources to production (or new suppliers can enter the market) which increases
the quantity supplied. Demand ultimately sets the price in a competitive market, supplier
response to the price they can expect to receive sets the quantity supplied.
The law of supply is one of the most fundamental concepts in economics. It works with the law
of demand to explain how market economies allocate resources and determine the prices of
goods and services.
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13. What are the limitations and factors affecting the Law of Supply?
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Cost of
Production

14. Cost of Production
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When there are changes in the cost of raw materials or labor to produce
a unit of supply, the volume will change as well, assuming the selling
price remains the same. The variable cost affecting profit margins is a
big factor in targeting the quantity to produce.

15. Technological Changes
Advancement in technology can boost the efficiency
with which units are produced, lessening the cost of
production. This then has a similar effect to that
outlined under “Cost of Production”.
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16. Taxes
The imposition of taxes in the production of goods
limits profitability. If a producer is required to remit
a portion of sales as tax, then the producer will be
less inclined to increase supply.
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17. Legislations
Certain regulatory laws or quotas may be put in place
that limit the quantity of a given product that can be
produced. For example, in the energy industry, carbon
offsets limit the amount certain companies can supply.
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18. Periods of Uncertainty
In situations of higher business risk, producers may be
inclined to reduce supplies so that they can offload older
inventory. During war or civil unrest, for example,
producers are more than eager to sell, even possibly at a
lower price.
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19. Bibliography
▫ https://corporatefinanceinstitute.com/
▫ https://www.investopedia.com/
▫ https://www.slideshare.net/
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20. THANK YOU
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