Exceptions of Law of Supply

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. 

FAQs (Frequently Asked Questions)

1. Which commodities come under an exception to the law of supply?

The law of supply states that the quantity supplied of the commodity rises when there is an increase in price keeping other factors constant. An exception to the law of supply arises when there is a reduction in the quantity supplied with increasing prices. Several commodities fall under exceptions like farm produce, economic slowdown, perishable commodities, business change, and more. Farm products do not follow the law of supply due to their high dependency on weather conditions. Products that are perishable in nature cannot be stored for a long period and thus have a short shelf life. Some of the examples include flowers, fruits, vegetables, and more, which the seller sells even if the prices are not rising.

2. How can one state that the supply of labour is an example of an exception to the law supply?

The supply of labour is one of the major examples of an exception to the law supply. The workers are generally concerned with high wages until a point. Once they are able to achieve a certain point they might like to dedicate their time to other activities. It means that after a particular period workers may not have a keen interest in high wages. Hence, initially, the labour supply is directly linked to the wages but after a particular point, the relation between the supply of labour and wages terms is inverse. It shows that the supply of labour refers to an exception of the law of supply.

3. Explain the economic slowdown which is an exception to the law of supply. 

Generally, the businesses have to pass through different phases and the sellers have to adapt to such business-related changes. During the low economic phases, the sellers don't enjoy the advantage of the increased prices and hence during these tough times, they have to sell the goods to recover their costs and won't witness the rise in prices. So, in this way, the law of supply is not applicable in this particular case. 

4. Why does the law of supply don't apply when the products are out of fashion? 

When the goods and services are in fashion then the sellers can supply them at reasonable and higher prices. But at times, there are some goods that go out of fashion and are no longer trendy. These goods are being sold at very low prices for clearing their stock.