State and explain the law of supply with assumptions.

Answer:

Statement: Other things remaining constant, the quantity supplied of a commodity increases with a rise in its price and decreases with a fall in its price. There is a direct (positive) relationship between price and quantity supplied: \(S = f(P)\).

Assumptions:

1. Cost of production remains unchanged.
2. No change in the technique of production.
3. Prices of factors of production remain constant.
4. No change in government policies such as taxation and subsidies.
5. Weather conditions and natural factors remain constant.
6. Prices of other goods remain constant.
7. No expectation of future changes in price.
8. Means of transport and communication remain unchanged.

Explanation with schedule:

As price rises from ₹ 10 to ₹ 50, quantity supplied rises from 100 kg to 500 kg. A higher price means higher profit, so sellers offer more for sale.

[Diagram: price on the Y-axis and quantity supplied on the X-axis; the supply curve SS slopes upward from left to right, showing the direct relation between price and quantity supplied.]

Exceptions: labour supply (backward-bending supply curve of labour), agricultural goods, perishable goods, rare articles like antiques and auction sales, and expectation of future price changes.

Conclusion: The law of supply explains the positive relationship between price and supply, which is why the supply curve slopes upward from left to right.