The
law of supply states that’
” Other thing being equal, the quantity
of a commodity supplied is directly related to its price”. Therefore,
the law of supply is based on the following assumption.
1. The price of substitutes
remains unchanged: -The law of supply assumes that the price of
substitute’s commodities remains unchanged. If the price of substitute
commodities changes, then the law of supply will not apply.
2.
There is no change in cost of production: - It
is assumed that there is no change in the cost of production. If there is a
change in the cost of production, it may affect the price of the commodity and
its supply.
3. There is no change in the
technology and method of production: It is assumed that there is
no change in the technology and method of production. If there are some changes
in the technology and method of production, they may affect the cost of
production, price and supply of the commodity.
4. Government policies on
taxation remain unchanged: it is also assumed that the
government policies on taxation, especially sales tax, excise duties, customs
duties, etc. remain unchanged. A change in taxes will affect the price of the
commodities and their supply.
5. Weather and climatic
conditions remain unchanged: -It is assumed that the
weather and climatic condition remain unchanged. For instance, natural
calamities such as flood, drought, cyclone, earth quakes etc. adversely affect
the supply of commodities, especially agricultural commodities.
6. Transport cost remains
unchanged: It is also assumed that the transport cost remains
unchanged. Transport network is not affected by strikes or hike in petrol and
diesel prices. A change in transport cost affects the price of the commodities
and their supply.
7. No change in promotional
activities: -It is assumed that the promotional activities of the
producers and sellers such as advertising and other sales promotions activities
remain constant.
