Law of supply

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The law of supply is a fundamental principle of economic theory which states that, keeping other factors constant, an increase in price results in an increase in quantity supplied.[1] In other words, there is a direct relationship between price and quantity: quantities respond in the same direction as price changes. This means that producers are willing to offer more of a product for sale on the market at higher prices by increasing production as a way of increasing profits.[2]

In short, the law of supply is a positive relationship between quantity supplied and price and is the reason for the upward slope of the supply curve.

Mathematical definition[edit]

In non-differentiable terms, the law of supply can be expressed as:

where y is the amount that would be supplied at some price p, and y' is the amount that would be supplied at some other price p' . Thus for example if p > p' then y > y' .[3]

See also[edit]

References[edit]

  1. ^ Mas-Colell, A., Whinston, M. Green, J.: Principles of Microeconomics. Oxford University Press., pg 138. 1995.
  2. ^ Rittenberg, L. & Tregarthen, T.: Microeconomics
  3. ^ Mas-Colell, d., lucrezi, M. Green, J.: Principles of Microeconomics. Oxford University Press., pg 138. 1995.