Law+of+Supply

As per the law of supply, as the price of an entity increases the quantity of the good increases, and conversely as the price decreases the quantity demanded of a given good also increases. This relationship is clearly, unlike that of the demand, directly related, for as price increases quantity increases and as price decreases quantity decreases. So then what allows for this direct relationship when that of demand is inversely related? The answer is simple. While demand accurately represents consumer behavior, supply represents that of the producer.
 * Law of Supply**

Let's take a look at this idea conceptually. Clearly, is the price of a given item is unrealistically high, the demand for that item is going to be fairly low. As the price decreases, however, the the quantity demanded is going to increase. Conversely, from the producers point of view, if the price of an item is ridiculously high, it is only natural that said producer will be inclined to make many of the product in hopes of reeping the benefit of such a high price. If the price of the product drops, however; the producer is no longer as apt to produce such an abundant amount of the good. Thus the greater the price the greater the quantity of good supplied, the smaller the price the smaller the quantity of good supplied. This is ineffect, the law of supply.

This graph clearly shows the relationship between price and quantity supplied. As one moves to the right along the supply curve, it is clear the the price as well as the quantity of the good are increasing. The producer is willing to produce a greater quantity at a higher price. The law of supply is supported.

media type="youtube" key="IGLzbLl6yRk" height="344" width="425" This person describes the law of supply through transactions with Reese's Candy. As the price of each piece of candy increases from 25 to 50 cents, the quantity of candy sold increases as well.

Additional Links: [|Investopedia-Law of Supply vs. Law of Demand]

[|Wikipedia-Simplified]

[|Library of Economics & Liberty]

Sample Problem: Which statement is consistent with the law of supply? a. a good x has recently been deemed obsolete and its price drops drastically, the quantity supplied will therefore increase b. a good x has recently been deemed obsolete and its price drops drastically, the quantity supplied will therefore remain constant c. a good y has recently increased in value and thus its price has rapidly increased, the quantity supplied will therefore increase d. a good y has recently increased in value and thus its price has rapidly increased, the quantity supplied will therefore decrease.

correct answer: c, c is the only answer consistent with the direct relationship of supply while a, b, and d all represent an inversely related relationship.