Law of Supply, Limitations of Law of Supply and Determining Factors of Supply
–
Law of Supply
The law of supply is the law of microeconomics.
It means if price rises, supply increases.
If price falls, supply decreases.
If other things remain same, as the price of a good or service increases, the number of goods or services offered will also increase.
More supply means more selling and more profit.
In this condition, existing suppliers will produce more or new suppliers will enter in the market.
Assumptions under law of supply:
· No change in technology
· No change in tax policy
· No change in goal of producer
· No change in number of producers
· No change in price of substitutes goods
· Vo change in factors price
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Currency of your country
Law of supply can be explained with the help of table and figure as following:
|
Price per kg (in Rs) |
Supply per month(in kg) |
|
|
5 |
100 |
|
|
10 |
200 |
|
|
15 |
300 |
|
In the above table, when price is Rs 5 per kg, supply is 100 kg per month.
If the price rises to Rs 10, supply increases to 200 kg.
If the price further rises to Rs 15, supply further increases 300 kg per month.
This shows direct or positive relationship between price and quantity supplied.
In the above figure, price of the commodity is placed on the Y- axis and quantity supply on the X- axis.
The upward slopping curve SS is the supply curve.
When price is Rs 5 per kg, supply is 100 kg per month.
If the price rises to Rs 10, supply increases to 200 kg. If the price further rises to Rs 15, supply further increases 300 kg per month.
It shows that price and quantity supplied are directly related.
Higher the price higher will be the quantity supply and lower the price lower will be the supply remaining other things same.
#####
|
Click on link for YouTube videos: |
|
|
Accounting Equation |
|
|
Basic Journal Entries in Nepali |
|
|
Basic Journal Entries |
|
|
Journal Entry and Ledger |
|
|
Ledger |
|
|
Subsidiary Book |
|
|
Cash Book |
|
|
Trial Balance & Adjusted Trial Balance |
|
|
Bank Reconciliation Statement (BRS) |
|
|
Depreciation |
|
|
Final Account: Class 11 |
|
|
Adjustment In Final Account |
|
|
Capital and Revenue |
|
|
Single Entry System |
|
|
Non-Profit Organization |
|
|
Government Accounting |
|
|
Goswara Voucher (Journal Voucher) |
#####
Limitations or Exceptions of Law of Supply
There are many exceptions or Limitations of law of supply; some of them are given below:
Auction sale
If the firm is in crisis of money or it has to dissolve itself due to any reason immediately it offers its product in large quantity at very low price.
In this case law of supply is not applicable.
Stock clearance
There may be unclear the stock due to any cause like perishable nature of good, high cost of storage, seasonal and climatic change, unfavorable change in taste of consumer etc.
In this condition, the firm supplies large quantities even at lowered prices.
Expected future price
If the firm expects rise in prices in near future, the firm supplies less.
Even if there is rise in price, the firm waits for further rise in price.
If it expects fall in price in near future, it supplies more even if the price is low.
International and domestic inflation
If there is rise in prices of all or most of the goods, within or outside the county supply does not increase even at the high price.
Expected future availability
If the firm estimates the scarcity of commodities substituting its product, it supplies less now in order to make more gain selling in the near future at high price even if there is rise in price.
Change in state technology
The producer may supply more goods even at low price due to improvement in technology and decrease in the cost of production.
#####
|
Click on link for YouTube videos |
|
|
Share (Accounting for Share) |
|
|
Share in Nepali |
|
|
Debentures |
|
|
Final Account: Class 12 |
|
|
Final Account in Nepali |
|
|
Work Sheet |
|
|
Ratio Analysis (Accounting Ratio) |
|
|
Fund Flow Statement |
|
|
Cash Flow Statement |
|
|
Theory Accounting Xii |
|
|
Theory: Cost Accounting |
|
|
Cost Accounting |
|
|
LIFO−FIFO |
|
|
Cost Sheet, Unit Costing |
|
|
Cost Reconciliation Statement |
|
#####
Determining Factors of Supply
The major determining factors of supply are given below:
Price of goods
Supply is directly proportional to price. If price rises, supply increases and vice versa.
It is because the firm can make more profit selling at higher price than at lower price.
Prices of raw materials
Supply is inversely related to the prices of inputs. Inputs are land, labor, capital and raw materials.
Their prices are wage rate, rent, interest rate etc.
If the price of inputs increases, the cost of production also increases.
It reduces the supply of the good s and services in the market and vice versa.
Level of technology
Supply is positively related to the level of technology.
If there is advancement in technology, the firm can produce and more at the same price.
But, if there is destruction of technology due to any cause then supply decreases.
Resources available
Supply is positively related to resources available.
If there is appropriate availability of resources, then the firm can produce and supply more quantity at the same price.
But, if there is no more stock of resources, supply decreases.
Expected profit margin
If there is more profit margins to the firm, the firm supplies more and vice versa.
But, if the firm expects more profit in the near future, current supplies less and vice versa.
Government policy
Supply is inversely related to taxes.
If there is high tax rate, there is less supply.
But, if the government imposes less tax, supply increases (subsidies to increase supply).
***** #EPOnlineStudy *****
Thank you for investing your time.
Please comment on article.
You can help us by sharing this article at your social media platform.
Jay Google, Jay YouTube, Jay Social Media
जय गूगल, जय युट्युब, जय सोशल मिडिया
You might also like
Income Statement under NFRS | Balance Sheet under NFRS | P&S 1
Balance Sheet under NFRS | Statement of Financial Position under NFRS | Solution
Income Statement under NFRS | Profit or Loss Statement under NFRS | SOLUTION
Income Statement under NFRS | Balance Sheet under NFRS | EXPLANATION
Financial Statement under NFRS| Classification of Accounting Standards
Swar | Vyanjak | A Aa I Ee | Ka Kha Ga Gha | Ka Kaa Ki Kee | Barahkhadi | Kra Khra Gra
ABCD | British Phonetic ABCD | American Phonetic ABCD | ABCD in Devanagari
The Half-closed Eyes of the Buddha and the Slowly Sinking Sun | All Solution | NEB English Class 12 | Short Story Q&A
