Law of Supply
- There is no change in the price of substitutes.
- There is no change in the cost of factors of production.
- There is no expectation of any change in prices in future.
Price ($ per kg)
Quantity Supplied (kg. per month)
Exception to the Law of Supply
- Auction sale: The law of supply does not hold goods in auction sale. Auction sale may be made when a seller is badly in need of money. Hence, he will be prepared to sell all his goods at whatever the price offered. But even in auction sale, goods are sold to the highest bidder, which may be called the operation of law of supply.
- Clearance sale: The shopkeepers offer the clearance sale at heavily discounted price so as to get rid of the old stock. Hence, the law of supply does not hold good, since the shopkeepers attempt to sale more at lower price.
- Expectation of sellers: If the sellers expect that there will further fall in price in future, they will try to sell more even if price falls. Likewise, if they expect the further rise in price, they will not sell more even if the price is high. The sellers attempting to hoard food grain before the cultivating season and sell before harvesting season proves this.
- Fear of being out of fashion: The taste and fashion change from time to time. The advance of technology has brought rapid change in taste and fashion. This makes some of the goods out of fashion. Hence, if the change in fashion is expected, the sellers try to sell more at lower prices.