The law of supply states that, all else being equal, when the price of a product rises, the quantity supplied also rises; when the price falls, the quantity supplied decreases.
Formulaically:
Supply is directly related to price.
Why does this happen?
- Profit Motive – Higher prices encourage producers to increase output.
- New Entrants – Rising prices attract new businesses into the market.
- Production Costs – Higher price justifies covering higher production costs.
Example:
If the price of wheat increases, farmers will be motivated to grow more wheat next season.
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