Question

What does the Law of Supply state? List two assumptions of this Law.

Answer 1

The law of supply 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.

Assumptions of Law of Supply include:

(i) Nature of Goods- If the goods are perishable in nature then the seller cannot wait for the rise in price. The seller may have to offer all of his goods at current market price because he may not take the risk of getting his commodity perished.

(ii) Alternative Products. If a number of alternative products are available in the market and customers tend to buy those products to fulfill their needs, the producer will have to shift to transform his resources to the production of those products.