ASSUMPTIONS TO THE LAW OF SUPPLY


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.

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