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The relationship between price and quantity supplied is usually a positive relationship. A rise in price is associated with a rise in quantity supplied.
Definitions
— In the words of Dooley. “The law of supply states that other things being equal the higher the price, the greater the quantity supplied or the lower the price, the smaller the quantity supplied.”
— According to Lipsey, “The law of supply states that other things being equal, the quantity of any commodity that firms will produce and offer for sale is positively related to the commodity’s own price, rising when price rises and falling when price falls.”
As the price of good increases, suppliers will attempt to maximize profits by increasing the quantity of the product sold.
Determinants of supply
Supply Function
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The supply function is the mathematical expression of the relationship between supply and those factors that affect the willingness and ability of a supplier to offer goods for sale SX = Supply of goods PX = Price PF = Factor input employed (used) for production. · Raw material · Human resources · Machinery O = Factors outside economic sphere. T = Technology. t = Taxes. S = Subsidies
There is a functional (direct) relationship between price and supply. |
