Q.State and explain the law of supply.
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Start your 14-day free trial to unlock the full solution →The law of supply expresses the direct relationship between the price of a commodity and the quantity supplied: when price rises, quantity supplied rises, and when price falls, quantity supplied falls, other things being equal. This makes the supply curve upward-sloping.
Statement of the law: Other things being equal, the quantity supplied of a commodity extends (rises) with a rise in its price and contracts (falls) with a fall in its price. Thus there is a direct or positive relationship between price and quantity supplied.
Assumptions (other things being equal): The law holds only if factors other than price remain unchanged — the technique of production, the prices of factors of production (cost), the prices of related goods, the goals of the firm, government policy (taxes and subsidies) and the number of sellers stay constant.
Supply schedule (illustration):
| Price of the commodity (in Rs) | Quantity supplied (units) |
|---|---|
| 10 | 100 |
| 20 | 200 |
| 30 | 300 |
| 40 | 400 |
As price rises from 10 to 40, quantity supplied rises from 100 to 400 units, showing the direct relationship.
Supply curve: When this schedule is plotted with price on the Y-axis and quantity supplied on the X-axis, the supply curve slopes upward from left to right (positive slope), confirming the direct price-quantity relationship.
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