Law of Supply
Law of supply of goods and services speaks from supplier / seller point of view
Like law of demand which states a relation between the price and the quantity demanded for a good or service, law of supply states a relation between price and quantity supplied. Supply, like demand, is a flow concept. As Lipsey has put it: "Supply is a desired flow: how much firms are willing to sell per (unit) period of time not how much they actually sell." Law of supply refers to the amount of a goods or services that producers are willing and able to offer for sale at each possible price per unit. The law of supply simply states that, as the price of a good or service rises, the quantity supplied (i.e., offered for sale) also rises.
— In the words of Dooley. "The law of supply states that other things being equal the higher the price, the greater the quantity supplied or the lower the price, the smaller the quantity supplied."
— According to Lipsey, "The law of supply states that other things being equal, the quantity of any commodity that firms will produce and offer for sale is positively related to the commodity's own price, rising when price rises and falling when price falls."
As the price of good increases, suppliers will attempt to maximize profits by increasing the quantity of the product sold.
Table of supply schedule
The relationship between price and quantity supplied is usually a direct and positive relationship. A rise in price is associated with a rise in quantity supplied by the seller in the market.
Graphical presentation of supply schedule
The Supply schedule is presented in the graphical form, wherein the quantity Supplied is shown on X axis and the price of the oranges are shown on Y axis.
The supply of goods is at 100 when the price of the goods is at 10/-, similarly the supply is increased from 100 to 250 by the producer / seller when the price is increased from 10 to 13/-. As the price of the goods is increased the supply of goods is also increased and the price is decreased the supply for goods is also decreased by the seller, which is because of Law of Supply effect on goods and services, as there is always direct relation in between price of the goods and services and Supply for the goods and services. The supply curve always moves upwards from left to right.
WHY DOES PRICE INCREASES WHEN THERE IS A SHORTAGE OF GOODS?
In below table , there is a shortage of goods (150-50 =100 units) at a price of $5 and Quantity demanded (Qd) (150 units) is greater than quantity supplied (Qs) (50 units), buyers will not be able to buy all they had hoped to buy at $5. Some buyers will bid up the price to get sellers to sell to them instead of selling goods to other buyers. Some sellers, seeing buyers more demand for the goods, sellers will realize that they can raise the price of the goods that they have for sale. Hence the higher prices will also make the sellers to add (production) output. Thus, there is a tendency for price and output to rise until equilibrium is achieved.