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8-Define Law of Supply in Microeconomics |Understand the law of Supply supply Concept| Supply Theory - YouTube
Channel: Easy Learning Economics
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The Law of Supply
Hello friends, how are you?
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Welcome to easy learning economics.
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Today, we are going to learn the law of supply.
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As we know supply means to provide something
but in economics, supply means a number of
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goods and services a producer is willing and
offering to sell at the different price levels.
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Stock is the number of goods that is stored
in a godown to meet the market demand.
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The law of supply is a conditional law because
it is based on the same assumptions.
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What are those assumptions?
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1- Raw material is available in a sufficient
quantity.
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It means an increase in the demand for raw
materials does not affect the price level.
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2- The method of production remains the same.
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3- No: of suppliers don鈥檛 change.
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4- The government policies regarding subsidies
and taxes remain the same.
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5- The price of related goods means the substitute
and complementary goods remain the same.
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6- There is no discovery
of natural resources.
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7- The availability of the factors of production
also remains the same.
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These are the assumptions on the basis of
which the law of supply functions.
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It is a conditional law, it states when price
increases, the quantity supply increases,
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and if the price decreases the quantity supply
decreases, cetris paribus, which means other
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things remain the same.
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These are the assumption that we have taken,
they must remain the same to prove the law
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of supply.
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Explain the law of supply by making the supply
schedule by price and quantity supply of x
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commodity.
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When the price is 100 the quantity supplied
is 1000, when the price is 200, the quantity
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supply of x commodity increases from 1000
to 2000 units, as the price increases the
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quantity supply increases to 3000, and when
the price increases to 400 and 500 the quantity
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supply increases to 4000 and 5000 units.
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There is a direct relationship between the
price and quantity supplied.
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It means if the price increases, the quantity
supply increases, and when the price decreases,
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the quantity supply decreases.
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For example, per meter of cloth is 100 rupees,
1000 meters are supplied in the market, and
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200 the increase likewise.
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So there is a direct relationship between
price and quantity supplied.
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We can convert this table into a graph.
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For making a graph, when the price is 100,
1000 meters are produced, the quantity supplied
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is shown on the x-axis and the price is shown
on the x-axis.
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The price increase the quantity supplied also
increases from the A point to the B point
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and as the price increases from 200 rupees
to 300 rupees meter, the quantity supplied
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increases from 2000 to 3000 meters, and as
the price increases, the quantity supplied
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increases to 4000 and 5000 meters.
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These are the different points A, B, C, D,
and E showing a direct relationship between
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the price and quantity supplied.
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When the price is 100 the quantity supplied
is 1000, when the price is 200, the quantity
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supplied increases likewise.
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If we join all these points, we get a curve
that is called the supply curve.
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SS is a supply curve.
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What is the importance of the law of supply
and how does it guide in daily life?
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The law of supply guides a producer that which
product and what quantity is to be produced
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and focused on the basis of its price because
as price increases the quantity
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supply increases.
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It helps to determine the equilibrium price.
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This is about the law of supply.
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However, the goods may be perishable and durable.
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The perishable goods are those goods that
cannot be stored and it is assumed that the
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storage facilities like refrigerators are
not available, they are bound to sell like
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milk, vegetables, fruits, yogurt, curd, etc.
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In the case of the perishable goods, the supply
curve is parallel to the Y-axis, because it
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remains fixed.
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This is the short-run supply curve of the
SSC.
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The supply does not increase on that day if
the price either increases or decreases, as
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all the perishable goods are supplied in the
market and they are bound to sell.
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The SSC is parallel to the y-axis.
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This is the point where the supply and demand
are in balance.
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The OP is a price, where the quantity supply
and the quantity demand become balanced and
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as the demand DD decreases, the price also
decreases, and the DD shifts outward and demand
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increases, the price also increases.
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So, the supply curve in the case of perishable
goods is parallel to the y-axis that remains
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fixed.
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The supply cannot increase for perishable
goods in the short-run period.
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It is all about the law of supply, it is a
conditional law and it is based on the same
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assumptions.
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There is a direct relationship between the
price and quantity supplied.
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As the price increases, the producer motivates
to produce more and as the price decreases,
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the producer is discouraged to produce more,
as, his profit is affected.
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That鈥檚 why the supply curve is a rising
curve and the supply curve for perishable
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goods is parallel to the y-axis.
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The change in a supply means a shift in the
supply curve or an increase or decrease in
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the supply curve that we study in the next
video.
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Thank you very much for watching.
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