Exception to the Law of Supply-The law of supply states that sellers are willing to sell more of a product at a higher price and vice versa. In other words, when the price of a product increases, its supply increases, but when the price of a product decreases, its supply decreases, all other things being constant.
So there is a relationship between the price of the product and its offer. However, there are some exceptions to the law of supply.
Also check: What is Supply? Meaning & Examples .
5 Exception to the Law of Supply
- Expected Price
- Change in Other factors
- Agriculture goods
- Perishable goods
- Auction sale
When sellers anticipate a significant future price drop, they often try to sell more of their goods or services in the present. This is because they want to clear their existing stocks before the prices decrease, allowing them to avoid potential losses.
On the other hand, when sellers expect prices to rise in the future, they may choose to sell less at the current price. By doing so, they can benefit from selling their products at higher prices later on, maximizing their revenue.
These actions are driven by the expectation that adjusting supply based on anticipated price changes can be a strategic move to optimize profits in a dynamic market. It’s a fundamental aspect of how businesses navigate market conditions and make decisions to balance their inventory and pricing strategies.
Change in other factors
Change in habit, taste, fashion, weather and national and international disturbances also affect the supply of a commodity.Various factors can contribute to changes in agricultural prices. These may include changes in input costs (such as fuel, labor, and raw materials), technological advancements affecting production efficiency, government policies (subsidies, tariffs), and global market trends.
The supply of agricultural goods more depends upon natural factors rather than price of the commodity. For example, natural disaster like flood reduces supply of paddy.Different types of agricultural goods have unique characteristics that can affect their pricing. For example, the shelf life of a product, its susceptibility to pests or diseases, and transportation costs can impact the overall price.
Sellers want to sell more units of perishable goods although their prices may be falling because the sellers can not hold them. Perishable goods, such as fruits, vegetables, and dairy products, are highly sensitive to factors like transportation time, storage conditions, and shelf life. Any disruptions in the supply chain can lead to significant fluctuations in prices.
Additionally, consumer demand for freshness and quality plays a crucial role in determining prices for perishable goods.
When a firm wants to sell its old stock, it sells through auction sale. In the case of auction sale, sellers sell more goods at a reduced price. The motive behind such a sale is to clear off old stock.Auction sales can introduce an element of price discovery to the market. The bidding process allows buyers to determine the value of the goods based on their assessment of current market conditions and their specific needs.
The final price in an auction is often influenced by the competitiveness of the bidding process and the number of buyers interested in the goods.
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Frequently Asked Question
How will the law of desire affect work?
In terms of providing services, the supply chain bends backwards. Initially, if wages are high or increasing, the supply of labor will increase. But later, the delivery of work will decrease because, due to high wages in the early years, work may require more leisure time. Therefore, the law of supply will not be involved in this.