Definition

Alfred Marshall, in Principles of Economics (1890), defined supply as: “The supply of a commodity is the amount that is offered for sale in a market at a given time at each possible price.” (Marshall, Alfred. Principles of Economics)

Introduction

Imagine you’re running a lemonade stand. At ₹10 a glass, you might sell only a few glasses. But if the price rises to ₹30 a glass, you’ll probably squeeze more lemons to make extra profit. This tendency—that sellers produce and sell more at higher prices and less at lower prices—is the Law of Supply.

Explanation

• Meaning of Supply
  • Refers to the quantity producers are willing and able to offer at different prices in a given period.
  • Not the same as stock—supply is what’s offered for sale, not all that exists.

• Law of Supply
  • States: As the price of a commodity rises, the quantity supplied rises; as the price falls, the quantity supplied falls, ceteris paribus.
  • Price ↑ → profit potential ↑ → firms expand production.
  • Price ↓ → less incentive → supply contracts.

• Assumptions: Technology constant, costs of inputs stable, number of sellers unchanged.

• Exceptions: Rare cases like backward-bending supply of labour (at very high wages, people may prefer leisure), or perishable goods nearing expiry.

Diagram: Law of Supply Curve

Diagram Explanation

The supply curve slopes upward: at a low price (P1), suppliers bring little to market (Q1). At a higher price (P2), they increase production (Q2). It shows the direct relationship between price and quantity supplied.

Real-World Case

Agricultural Produce in India
During bumper harvest years, if the government raises the Minimum Support Price (MSP) for wheat or rice, farmers are encouraged to supply more to the market. This demonstrates the law of supply—higher guaranteed prices attract more supply.

Reference: Food Corporation of India – MSP Policy Report

Key Takeaways

• Supply is what producers are willing and able to sell, not just what exists as stock.

• The Law of Supply illustrates a positive relationship between price and the quantity supplied.

• Supply curves generally slope upward, though exceptions exist.

• Incentives (profit motive) drive the law of supply.