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 period under consideration is generally less.
Natural factors remain constant or unchanged.
The preferences of every individual buyer remain unchanged.
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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 to the law of supply, which one should understand.
What are the Exceptions of the 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:
Closure of Business
Out of Fashion 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 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 to 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.
Supply refers to the quantity of a commodity offered by a seller or a particular firm at a certain price. Several factors 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.