The law of supply is one of the fundamental principle of economic theory. The law of supply states that, keeping other factors constant, an increase in price results in an increase in quantity supplied and vice - versa. There is a direct relationship between price and quantity. The manufactures are willing to produce more and offer the products for sale in the market at higher prices. This way they can increase their profit. The law of supply has a positive relationship between quantity supplied and the price. This is the reason the supply curve is upward sloping. Supply in the market can be shown as an upward sloping supply curve. A supply curve shows how the quantity supplied will respond to various prices over a period of time.
The Chart shows the law of supply, using a supply curve. The slope is upward sloping, with points A, B and C on the supply curve. Each point on the curve shows a direct relationship between quantity supplied (Q) and price (P).The supply curve is upward sloping. The producers can choose how much of their goods to produce and later brings that to the market.
Supply of a commodity refers to the quantity of a commodity which producers or sellers are willing to produce and offer for sale at a particular price during a particular period of time. The three important things that needs to be noted in the definition of supply are :
Distinguish can be made between individual supply and market supply. Quantity of a commodity which one producer is willing to produce and offer for sale is known as individual supply. A single producing unit or a producer is called a firm in economics. Therefore, individual supply refers to the quantity of a commodity, which a firm is willing to produce and offer for sale at a particular price during a specified period. All the firms producing a commodity constitute an industry. The quantity that all the producers are willing to produce and offer for sale at a particular price during a specified period is known as market supply or the supply of the industry. Therefore, market supply or the supply of the industry is the sum total of supply of a commodity made by individual firm.
How much quantity of a commodity an individual or all the firms are willing to produce and offer for sale during a specified period of time is affected by various reasons :
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