In this article, you’ll learn about What is Law of Supply? Exceptions, Assumptions, Example.

1. What is the Law of Supply?

The Law of Supply is a fundamental principle in economics that explains the relationship between the price of a good or service and the quantity of it that suppliers are willing to offer in the market.

In simple words:
When the price increases, the quantity supplied also increases.
When the price decreases, the quantity supplied decreases — assuming all other factors remain constant.

This direct relationship between price and supply helps businesses decide how much of a product to produce and offer in the market.

2. Law of Supply Example

Imagine a factory that produces chocolate bars. If the market price of each chocolate bar rises from ₹10 to ₹15, the factory will want to make more chocolate bars to earn higher profits. So, they might increase production from 1,000 bars to 1,500 bars.

This is a real-life illustration of the Law of Supply — as price goes up, the quantity supplied increases.

3. Law of Supply Definition

“Other things being equal, the quantity of a good supplied increases when its price increases and decreases when the price decreases.”

This definition shows that there is a positive relationship between price and quantity supplied, provided that all other factors like technology, production costs, and government policies remain unchanged.

4. Assumptions of Law of Supply

The Law of Supply is based on several key assumptions:

1. No change in technology – The technology used in production remains constant.
2. No change in input prices – Cost of raw materials, labor, etc. stays the same.
3. No change in number of sellers – The number of suppliers in the market remains fixed.
4. No government intervention – No new taxes, subsidies, or price regulations.
5. Producers aim to maximize profit – Sellers want to earn the highest possible profit.

These assumptions help isolate the effect of price on supply.

5. Exceptions of Law of Supply

Although the Law of Supply is generally true, there are several exceptions where this principle may not apply.

5.1 Agricultural Products

Farmers often cannot increase supply even if prices rise, especially in the short run. Crops take time to grow, and natural factors like weather affect output.

Example: Even if wheat prices rise, farmers can’t instantly grow more wheat.

5.2 Goods for Auction

Some goods are sold in auctions, like antique paintings or rare coins. The quantity available is fixed, so supply does not increase even if prices go up.

Example: Only one Mona Lisa painting exists. Its supply can’t increase, no matter how high the bid goes.

5.3 Expectation of Change in Prices

If producers expect future prices to increase, they may hold back supply to sell later at a higher price.

Example: If oil producers think oil prices will rise next month, they might reduce supply now and sell more later.

5.4 Supply of Labour

In certain situations, people may work less even if wages increase — especially when they earn enough and prefer more leisure time.

Example: A professor who earns a higher hourly wage might choose to work fewer hours to relax or pursue hobbies.