3.2 : Law of Supply

The law of supply explains how the quantity supplied of goods changes in response to a change in price.

A positive relationship exists between the price of a good and the quantity supplied, keeping all the other factors constant.

The assumption that all other variables remain constant allows for the analysis of how price changes affect the quantity supplied, unaffected by changes in factors like cost of inputs, technology, future expectations, and number of sellers.

Graphically, the law of supply can be represented as an upward-sloping curve with quantity supplied on the x-axis and price on the y-axis.

Consider the law of supply with a lemonade example. During a hot summer, increased demand drives up lemonade prices. In response, sellers boost production by working longer hours, investing in more lemon-squeezing machines, or hiring additional staff, leading to an upward movement along the supply curve.

Conversely, in cooler seasons, decreased demand results in a downward movement along the supply curve. 

The fluctuation in price influences seller's decisions, impacting the quantity they are willing to supply.