Economics for Common People – Part 6 The Law of Supply
1️⃣ What Is the Law of Supply?
The Law of Supply states:
When the price of a product increases, the quantity supplied increases. When the price decreases, the quantity supplied decreases.
This happens while keeping other factors constant.
2️⃣ Why Does Supply Increase When Price Increases?
There are two main reasons:
- Profit Motivation – Higher price means higher potential profit.
- New Producers Enter – More firms may enter the market when prices are attractive.
Producers aim to maximize profit.
3️⃣ Supply Curve
The supply curve shows the relationship between price and quantity supplied.
It usually slopes upward from left to right.
This upward slope shows a direct relationship between price and supply.
4️⃣ Assumptions of the Law of Supply
The law works under certain conditions:
- Cost of production remains constant
- No change in technology
- No change in government policy
- No major natural disasters
If these factors change, supply may shift.
5️⃣ Movement vs Shift in Supply
When price changes, there is a movement along the supply curve.
When other factors change (like technology or cost), the entire supply curve shifts.
Understanding this difference is important in economics.
Price and supply move in the same direction. Higher price encourages higher production.
— Shaktimatha Learning
No comments:
Post a Comment