The Law of Supply

The law of supply states that the quantity offered for sale will vary directly

with price. This means that as price increases quantity supplied also increases;

and as price decreases, quantity supplied also decreases. This direct

relationship between price and quantity supplied is the law of supply. Producers

are willing and able to produce and offer more goods at a higher price than at

a lower price. Obviously, sellers offer more goods at higher prices because they

make more profits. Such behavior of sellers or producers is a natural inclination.

No businessman is willing to produce goods if he makes no profit.

The Ceteris Paribus Assumption of Supply

The law of supply is only correct if we apply the assumption of ceteris

paribus. This means the law of supply is valid if the determinants of supply like

cost of production, technology, number of sellers and so forth, are held constant.