Question

Explain the Law of Supply. What are its exceptions ?

Hint:

While the Law of Demand is based on consumer behavior (marginal utility), the Law of Supply is based on producer behavior (profit maximization).

Answer 1

Step 1: Understanding the Concept:
The Law of Supply describes the functional relationship between the price of a commodity and the quantity offered for sale by producers.
Step 2: Detailed Explanation:
The Law: It states that "other things being equal (ceteris paribus), as the price of a commodity increases, the quantity supplied increases, and as the price decreases, the quantity supplied decreases."
The supply curve slopes upward from left to right, indicating a positive correlation.
Assumptions: Technology, cost of production, and government policy remain unchanged.
Exceptions to the Law:
1. Agricultural Products: The supply of crops depends more on weather conditions (monsoon, pests) than price. If a harvest is ruined, supply cannot increase even if prices are high.
2. Perishable Goods: Sellers of items like milk or vegetables may sell more even at low prices to avoid complete loss due to spoilage.
3. Rare Articles: The supply of unique items (e.g., a painting by Da Vinci or ancient coins) is fixed and cannot be increased regardless of the price offered.
4. Expectation of Price Change: If sellers expect prices to fall further in the future, they might sell more now at a lower price.
5. Labor Supply: After a certain wage level, workers may prefer leisure over work, causing the labor supply curve to bend backward.
Step 3: Final Answer:
The Law of Supply typically holds for industrial goods but fails in sectors where production is constrained by time, nature, or absolute scarcity.