Answer the following about 200 to 250 words each State and explain the law of supply. What are the assumptions of this law?

Answer the following about 200 to 250 words each

State and explain the law of supply. What are the assumptions of this law?

ANSWER:

According to the law of supply, the quantity supplied of a commodity is positively related to the price of the commodity, other things remaining constant. In other words, when the price of a commodity rises (or falls), the quantity supplied will increase (or decrease), other things remaining unchanged.

The law of supply is based on the following assumptions:

i. The price of inputs, or the firm's cost of production, remains the same.

ii. State of technology does not change i.e. there is neither appreciation nor depreciation of the existing technology.

iii. Price of the related goods (such as substitute goods and complementary goods) remains the same.

iv. Government policies remain unchanged.

v. There is no change in the transport facilities used by the firm and the transportation cost.

vi. There is no change in the natural factors and there is no advent of any natural calamity such as an earthquake etc.

No comments: