We know that the supply of a commodity depends upon several factors. But price of commodity is considered to be the most important factor which influences the supply of commodity.
While analysing the law of supply the determinants of supply other than price of the commodity are ignored because it helps us to analyse the influence of price on the quantity supplied of a commodity in the market.
The law of supply states that, “Ceteris paribus, higher is the price, higher is the quantity supply and lower is the price, lower is the quantity supply.” In other words, the law says that, “Other things remaining same, as the prices of the commodity rise, the supply extends and as the prices fall, the supply contracts.” Symbolically, the law states, Sx oc Px, Ceteris paribus where Sx stands for the supply of commodity X and Px the price of commodity. In other words, law of supply establishes a positive relationship between price and supply.
Assumptions:
The law of supply is based on following assumptions.
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(a) The income of buyers and sellers remain constant.
(b) The commodity must be divisible and available in small units.
(c) The tastes and preferences of buyers remains unchanged.
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(d) The cost of all factors of production remains constant.
(e) The time period under consideration must be short.
(f) The technology level remains constant.
(g) The producer is rational.
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(h) Natural factors should be normal.
(i) Expectation of producer and the Govt. policy should remain constant.