exceptions to the law of supply giffen's paradox,supply of labour,urgent need for cash,perishable goods odd man out
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a loan plus the interest received borrowed to buy a house Costing tk270000 if the down payment is tk 30000 and the interest rate is 8% calculated at the end of each month.what will be the equity after 5 years,10 years and 20 yearsMay I read
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Exceptions to the Law of Supply:
Following are the exceptions to the law of supply:
1) Supply of labour:
Labour supply is the total number of hours that workers work at a given wage rate. It is represented graphically by a supply curve. In the case of labour, as the wage rate rises the supply of labour (hours of work) would increase. So the supply curve slopes upward. Supply of labour (hours of work) falls with a further rise in wage rate and supply curve of labour bends backward. This is because the worker would prefer leisure to work after receiving a higher amount of wages. Thus, after a certain point when the wage rate rises the supply of labour tends to fall.
It can be explained with the help of a backward bending supply curve. The following table and diagram explain the backward bending supply curve of labour.
In the above figure, the supply of labour (hours of work) is shown on X-axis and wage rate per hour is shown on the Y-axis. The curve SAS represents the backward bending supply curve of labour. Initially, when the wage rate is ₹ 100 per hour, the hours of work are 5. The total amount of wages received is ₹ 500. When the wage rate rises from ₹ 100 to ₹ 200, hours of work will also rise from 5 hours to 7 hours and the total amount of wages would also rise from ₹ 500 to ₹ 1400. At this point, labourers enjoy the highest amount i.e. ₹ 1400 and work for 7 hours. If the wage rate rises further from ₹ 200 to ₹ 300, the total amount of wages may rise, but the labourer will prefer leisure time and denies working for extra hours. Thus, he is ready to work only for 6 hours. At point A, the supply curve bends backward, which becomes an exception to the law of supply.
2) Agricultural goods: The law of supply does not apply to agricultural goods as they are produced in a specific season and their production depends on weather conditions. Due to unfavourable changes in weather, if the agricultural production is low, their supply cannot be increased even at a higher price.
3) Urgent need for cash: If the seller is in urgent need for hard cash, he may sell his product at which may even be below the market price.
3. Perishable Goods
A seller is willing to sell more goods that are perishable in nature even at low prices because if they remain unsold they will yield only loss.
4.Rare goods
The goods that are rare such as artistic or precious goods have a limited supply. The supply of these goods cannot be increased according to their demand or rising prices.
Thus, even if their price increases their supply cannot be increased. In this case, also the law of supply shall not
apply.
5. Out of fashion goods
The latest goods that are in fashion have high prices. But, the out of fashion goods have low prices.
The sellers may sell them out of fashion goods even at low prices. As these will become dead inventory and also in order to realize the amount invested in the inventory.