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Trading and Investment Terms

Law Of Supply

The law of supply can be defined as the micro-economic law that states that, every other factors remaining the same, as the price of a product increases, the quantity of products that providers offer will also increase, and when the price of a product decreases, he quantity of products that providers offer will also decrease.

 

The law of supply states that as the price of a good or service increases, suppliers will endeavor to maximize their benefits by increasing the quantity for sale.

 

The supply curve is an upward sloping curve as, over the period of time, suppliers can decide the quantity of their goods they want to produce and later bring to market.

 

At any specific period in time however, the supply that suppliers bring to market is static, and suppliers simply have to face a choice to whether to sell or hold their stock from a sale; consumer demand sets the price and suppliers can just charge what the market will bear.

 

In the situation where there is a rise in consumer demand over time, the price will rise, and sellers can pick devoted new assets to production which expands the quantity supplied.

 

Demand ultimately decides the price in a free market, seller response to the price they can hope to ger sets the quantity supplied.

 

The law of supply is one of the most basic ideas in the field of economics.

 

It works along with the law of demand to clarify how market economies distribute resources and decide the prices of goods and services.

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