Law of Supply

The law of supply refers to a relation which exists between the price of a commodity and its supply. In simple terms, the law of supply states that with every rise in the price of a commodity, its supply rises; and with every fall in price, the supply of commodity falls, other things being constant. In other words if no disturbance is caused by likely to be accompanied by an expansion of supply and every fall in the price would be followed by a contraction of supply. In other words, market price and quantity supply are positively related. In a short form, the law of supply can be stated as follows:

Q^s_x = f (P_x)

This means the quantity supplied of good X is dependent upon the price of good X, provided all other factors affecting supply remain unchanged. The relationship between Q^s_x , the quantity of good X supplied, and P_x , the price of good X, is a direct one, i.e. quantity and price move in the same direction.