What is the Law of Supply?
The theory explains the relationship between the supply of commodities and its price. If other factors remain unchanged, the law of supply states the direct relationship which is between the price of the product and its supply.
Exceptions of Law of Supply
There are various exceptions to the law of supply which are very important and some of them are - change in business, competition, monopoly, perishable goods, agricultural products, legislation restricting quantity and artistic and auction goods. These are explained below -
Change in Business - Sometimes it may happen that the seller may plan for entering into a new business and exiting from the current one. When the current business is on the verge of closure, then it is possible that the seller may sell their goods at very lower prices for clearing them off. So, here in this situation, the law of supply is not being followed.
Monopoly - When there is a small number of products in the market and they are controlling the whole market, then here in this situation law of supply may not operate. In a monopoly, it is not necessary that the seller offers a larger quantity of goods and services even though the price of goods is higher. The control of the market by the monopoly allows it for setting the market price which is based on demand in the market.
Competition - The other structures like monopolistic competition and an oligopoly may be facing more competition and hence they offer to sell more quantities of goods and services at lower prices and neglect the law of supply.
Perishable goods - For avoiding the losses which may arise due to the damage of the perishable products, the supplier will offer to sell more quantities of goods at lower prices.
Legislation Restricting Quantity - When the government puts some regulations on the quantity of goods to be produced or the price ceiling only at which the goods is to be sold, suppliers cannot sell more quantities of goods at higher prices.
Agricultural Products - The production of agricultural products cannot be increased beyond a certain limit and hence the supply can not be increased beyond its limit even when the prices are higher, the product is not available to offer more quantities of it.
Artistic and Auction Goods - The supply of these goods can not be increased or decreased easily according to the demand which is there in the market. It is really difficult to offer more quantities of goods and services even when the prices are increased.