Exceptions of Law of Supply

Top
Download PDF

Expectation of Law of Supply

Supply refers to the quantity of a commodity offered by a seller or a particular firm at a certain price. There are several factors that affect the commodity supply including the technology state, input costs, objective of the seller, prices of other goods, and more. There is a law of supply, which expresses a relationship between the market supply and the price of goods. In some cases, the law of supply example does not hold, which leads to exceptions in this law. 


What is The Law of Market Supply?

The law of supply states that the sellers are ready to sell more goods at a high market price of a commodity. One can understand the law through the statement that when the price of the commodity rises, the supply of goods also rises. However, if the price of a commodity decreases, then its supply also reduces. Other than the price of the product, all the other factors remain constant in the law of supply. There are some assumptions while defining the law as:

  • The commodity of products is measurable and accessible in small units.

  • The income of the seller, as well as the buyer, remains unaffected.

  • The time period under consideration is generally less.

  • Natural factors remain constant or unchanged.

  • The preferences of every individual buyer remain unchanged. 

(Image to be added soon)

It shows that there is a straight connection between the supply of goods and the price of a commodity while other factors remain stable. However, there are some exceptions of the law of supply, which one should understand.


What Are The Exceptions of Law of Supply?

There are some situations under which the law of supply of goods is not applicable. It means that the supply of goods and the price of a commodity are not proportional. The exception of the law of supply is as mentioned below:

  • Monopoly

  • Closure of Business

  • Perishable Goods

  • Competition

  • Agricultural Products

  • Out of Fashion Goods

  • Rare Goods


Law of Supply Exceptions Example 

  • Closure of Business - In some circumstances when a business is on the edge of closure, the seller may sell the products even at cheap prices. The retailer does this to clear the supply of stock. In this case, the law of supply does not hold true and serves as an exception to the law of supply example.

  • Agricultural Products - It is challenging to increase the agricultural produce at a certain level as land is a limited resource. It shows that if the prices of land increase, the supply may not get increased.

  • Monopoly - The situation when there is only one vendor of a service refers to monopoly. The single seller is the price maker and has control over different prices. The seller may not be willing to raise the supply even if the prices are going high, hence it is an exception of the law of supply.

  • Competition - When there is high competition in the market, the sellers may sell goods in high quantities at low rates. It refers to a situation where the law of supply does not hold. 

  • Perishable Goods - Sometimes sellers are keen to sell perishable or fresh goods even at cheap prices. It is because, for the perishable goods, sellers cannot wait for a long time and if these types of goods remain unsold, then they will face only loss. 

  • Rare Goods - The goods that are precious or artistic generally have a limited supply. The supply of these goods cannot be raised according to the rising prices or demand. Hence, if the price of the goods increases, the supply of such rare goods cannot be raised. It is also an exception to the law of supply example.

  • Out of Fashion Goods - The up-to-date goods that are in trend often have high prices. However, those goods, which are out of fashion, have cheap prices. The sellers may sell these out of fashion goods even at cheap rates. 

FAQ (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 particular 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 point, 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 level, the relation between the supply of labour and wages turns inversely. It shows that the supply of labour refers to an exception of the law of supply.

Share this with your friends
SHARE
TWEET
SHARE
SUBSCRIBE