Definition:

The law of supply is a fundamental economic principle that states that the quantity of a good or service that producers are willing to offer for sale at a given price will increase as the price increases, and decrease as the price decreases.

Key Principles:

• Quantity Offered: The quantity of a good or service that producers are willing to offer for sale at a given price.
• Price: The monetary value of a good or service.
• Supply: The total quantity of a good or service that producers are willing to offer for sale at a given price.

Relationship:

The law of supply is illustrated by a supply curve, which plots the relationship between the quantity of a good or service offered for sale and its price. The supply curve slopes upward from left to right, indicating that as the price increases, the quantity offered increases. Conversely, as the price decreases, the quantity offered decreases.

Reasons for the Law of Supply:

• Opportunity Cost: Producers must incur opportunity costs to produce goods and services, so they will only produce quantities that are profitable.
• Production Costs: The cost of production, such as raw materials, labor, and transportation, influences the quantity that producers are willing to offer.
• Inventory Levels: Producers may have existing inventories of goods or services, which can affect the quantity they are willing to offer at a given price.

Examples:

• If the price of a car increases, the quantity of cars offered for sale will increase.
• If the price of wheat decreases, the quantity of wheat offered for sale will increase.

Impact:

• The law of supply is a key factor in determining market equilibrium prices.
• It helps to regulate the supply and demand of goods and services.
• It affects production decisions and consumer behavior.

Additional Notes:

• The law of supply is a fundamental principle of supply and demand economics.
• The law applies to all goods and services, except for perfectly inelastic goods.
• The law of supply is a dynamic phenomenon, meaning that it can change over time.