Question

Name and explain the situation in which law of supply is not applicable

Answer 1

Answer:

The normal law of supply is widely applicable to a large number of Products. There are certain exceptions to law of supply, like a change in the price of a good does not lead to a change in its quantity supplied in the positive direction.

The law of supply is not a universal principle that applies to all circumstances. There are, in fact, various important exceptions to the law of supply. Some exceptions to law of supply are given below:

Change in business

Monopoly

Competition

Perishable Goods

Legislation Restricting Quantity

Agricultural Products

Artistic and Auction Goods

1. Change in business

It may happen that the seller may plan to enter into an entirely new business by exiting the current one. So when the present business is on the verge of closure then the seller may sell his goods at lower prices to clear them off. So here too the law of supply is not being followed.

2. Monopoly

When a small number of producers control the supply of the market then the law of supply may not operate. For example, in the case of monopoly (single seller) may not necessarily offer a larger quantity supplied even though the price of goods is higher. Market control by the monopoly allows it to set the market price based on demand in the market.

3. Competition

Other market structures like an oligopoly and monopolistic competition may be facing more competition, therefore offering to sell more quantities at lower prices and negating the law of supply.

4. Perishable Goods

In cases of perishable goods, the supplier would offer to sell more quantities at lower prices to avoid losses due to damage to the product.

5. Legislation Restricting Quantity

Suppliers cannot offer to sell more quantities at higher prices where the government has put some regulations on the quantity of the good to be produced or the price ceiling at which the good is to be sold in the market.

6. Agricultural Products

Since the production of agricultural products cannot be increased beyond a certain limit, the supply can also not be increased beyond this limit even if the prices are higher; the producer is unable to offer more quantities.

7. Artistic and Auction Goods

The supply of such goods cannot be increased or decreased easily according to its demand. Thus, it is difficult to offer more quantities even if the prices shoot up.