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1. What is the law of supply?

Law of Supply

2. Law of Supply

It states that at higher prices, producers are willing to offer more products for sale than at lower prices.

It states that the supply increases as prices increase and decreases as prices decrease.

It states that those already in business will try to increase productions as a way of increasing profits.

3. What’s difference between Law of Supply from the Law of Demand?

4. Like the law of demand, the law of supply demonstrates the quantities that will be sold at a certain price. But unlike the law of demand, the supply relationship shows an upward slope. This means that the higher the price, the higher the quantity supplied. Producers supply more at a higher price because selling a higher quantity at a higher price increases revenue.

5. Time and Supply

Unlike the demand relationship, however, the supply relationship is a factor of time. Time is important to supply because suppliers must, but cannot always, react quickly to a change in demand or price. So it is important to try and determine whether a price change that is caused by demand will be temporary or permanent.

6. Time and Supply

Let s say there s a sudden increase in the demand and price for umbrellas in an unexpected rainy season; suppliers may simply accommodate demand by using their production equipment more intensively. If, however, there is a climate change, and the population will need umbrellas year-round, the change in demand and price will be expected to be  long term; suppliers will have to change their equipment and production facilities in order to meet the long-term levels of demand.

7. Supply Curve

A graph showing the hypothetical supply of a product or service that would be available at different price points. The supply curve usually slopes upward, since higher prices give producers an incentive to supply more in the hope of making greater revenue. In the short run the price-supply trade off is greater than in the long run. In the short run, an increase in price will usually cause an increase in supply, but the leading producers can only manage a limited increase. However, in the longer term, new producers enter the market attracted by higher prices, and the supply at each price increases more significantly. In theory, in the most extreme cases, supply can be totally unreactive to price (specialcases of very uncompetitive markets), or supply can be infinite at a particular price (e.g. a highly competitive market).