Law of supply

From Wikipedia, the free encyclopedia
Jump to: navigation, search

The law of supply is a fundamental principle of economic theory which states that, all else equal, 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 products for sale on the market at higher prices by increasing production as a way of increasing profits.[2]

In short, Law of Supply is a positive relationship between quantity supplied and price and is the reason for the upward slope of the supply curve. When the supply goes down, the price increases

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.