question_answer

State the Law of Supply, the assumptions on which it is based and exceptions to the law of supply.                                                                 

Answer:

            Law of supply derives the relationship between price and quantity supplied. According to this law, quantity supplied of a commodity is directly related to the price of a commodity, provided all other determinants are constant. The quantity supplied increases with increase in price and vice-versa.            Assumptions of the Law of Supply                                                       The various assumptions of the Law of Supply are given below:                                      (i) There is no change in the price of the factors of production.                                        (ii) There is no change in the techniques of production,                                             (iii) There is no change in the goal of the firm.                                                      (iv) There is no change in the price of related goods,                                              Exceptions to the Law of Supply                                                        The following are the exceptions to the Law of Supply:                                             (i) Agricultural Goods Law of Supply does not apply for agricultural goods, as their supply depends on climatic conditions and not on price.                                                           (ii) Perishable Goods Perishable goods like fruits, vegetables, milk and milk products cannot be held for long. Therefore, suppliers are willing to supply these products, even when prices are less, for fear that they would become totally useless,                                                              (iii) Antique Goods, Rare Articles and Paintings These goods are highly priced, but still their supply limited, as supply here is affected by factors other than price, e.g., the supply of Hussain's paintings cannot be increased even if buyers are willing to pay high price for it.                               (iv) Future Expectations Regarding Prices If prices are rising, but sellers anticipate that they would rise further in future, then they would not increase their supply now.                                     (v) Lack of Resources In underdeveloped or backward economies, supply cannot be increased (vi) Labour Market In the labour market, it is observed that as the wage rate rises, the workers tend to w for less hours, so as to enjoy more leisure. This causes the supply of workers to decrease at increase wage rate.