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Thelaw of supply is a fundamental principle ofeconomic theory which states that,keeping other factors constant, an increase in price results in an increase in quantitysupplied.[1] In other words, there is a direct relationship between price and quantity: quantities respond in the same direction as price changes. This means that producers and manufacturers are willing to offer more of a product for sale on themarket at higher prices, as increasing production is a way of increasing profits.[2]
In short, the law of supply is a positive relationship between quantity supplied and price, and is the reason for the upward slope of the supply curve.
Someheterodox economists, such asSteve Keen andDirk Ehnts, dispute the law of supply, arguing that the supply curve formass-produced goods is often downward-sloping: as production increases, unit prices go down, and conversely, if demand is very low, unit prices go up.[3][4]
A supply is a good orservice thatproducers are willing to provide. The law of supply determines the quantity of supply at a given price.[5]
Thelaw of supply and demand states that, for a given product, if the quantity demanded exceeds the quantity supplied, then the price increases, which decreases the demand (law of demand) and increases the supply (law of supply)—and vice versa—until the quantity supplied equals the quantity demanded.
For example, a job paying £20/hr attracts more interest than a job paying £15/hr, and a highinterest rate attracts lenders and deters borrowers.
There are various non-price determinants that can cause a shift in a supply curve.[6] For example, if the costs of production, such as wages, decrease, then the manufacturers can produce more goods for the same price, so the quantity supplied will increase. If the number of suppliers increases, or if the capacity of a factory producing the goods increases, the quantity supplied will increase.
Other factors can include government policy—government subsidies to encourage certain products decreases the overall cost of production. However, governmenttaxation can cause the cost of production to rise. For some products, such as in agriculture, the quantity supplied is dependent on the weather.
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| Decision theory andbehavioural economics | |
| Welfare economics | |
| Econometrics andmathematical economics | |
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