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What is the "law of supply"?

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Quick Answer

The law of supply is an economic concept stating that the price and supply of a good or service are directly elastic to each other. When the price of a good or service increases, the supply of that particular good or service invariably increases, and vice versa. The law of supply states that as price rises, suppliers seek to maximize profits by increasing the quantity supplied.

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Full Answer

The law of supply yields an upward-sloping supply curve. This indicates a positive relation, meaning the price and quantity supplied of a particular good or service move in the same direction. The fundamental relationship between supply and price depicts producer behavior in the competitive marketplace.

When the price of a good or service increases, the producer proportionately increases the quantity supplied to maximize profits. However, if the price of that same good or service decreases, the producer decreases the quantity supplied.

The law of supply affects not only economic transactions but everyday decisions as well. For instance, if students learn that computer programming jobs offer higher salaries than journalism jobs, the number of students enrolling in computer engineering classes may increase. If a company pays double for overtime, the number of workers and the hours they are willing to supply increases.

The law of supply is a core concept in economics. It is paired with the law of demand to explain fundamental market behaviors, such as resource allocation and price determinations for goods and services.

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