Law of supply

Like the law of demand, the law of supply is based on the assumption that if other things remain the same, only then a change in price will lead to direct change in supply of goods. Those other things assumed to be constant are as follows:

• There is no change in the state of technology.
• Prices of all inputs remain the same so that cost of production remains the same.
• The prices of other goods that a firm can produce in place of this good remain the same.
• Government’s policy regarding taxes and subsides on goods production, imports, exports, regulations, etc., remain unchanged.
• Natural conditions remain similar, i.e. there are no floods or droughts, no disasters, etc.

Thus, if all these factors are held constant, supply will expand with rise in price and decline with a fall in price of the good under consideration.