When the price of bread is low

Oct 13, 2025 by magicalceylontours.com 140 views

Understanding the Law of Supply: What Happens When Prices Rise?

When it comes to basic economic principles, the law of supply is a fundamental concept that helps us understand how businesses and markets respond to changes in prices. In this article, we will explore what happens to the supply of a product when its price increases, and how this affects the overall market.

The Law of Supply: A Brief Overview

The law of supply states that as the price of a product increases, the quantity supplied of that product also increases. This is because higher prices make it more profitable for businesses to produce and sell the product, leading to an increase in supply. Conversely, when prices fall, the quantity supplied decreases, as businesses become less inclined to produce and sell the product.

The Relationship Between Price and Supply

To understand the relationship between price and supply, let's consider a simple example. Suppose we have a small bakery that produces and sells bread. The bakery's goal is to maximize profits, which means selling as much bread as possible at the highest price possible.

When the price of bread is low, the bakery may not see a strong incentive to produce and sell a lot of bread. In fact, they may not even break even on their costs, let alone make a profit.
When the price of bread increases, the bakery sees an opportunity to make more money by producing and selling more bread. They may increase production, hire more staff, and even invest in new equipment to meet the growing demand.
As the price continues to rise, the bakery may become even more aggressive in their production and sales efforts. They may start to produce more varieties of bread, or even expand their operations to new markets.

The Supply Curve: A Graphical Representation

To visualize the relationship between price and supply, we can use a supply curve. A supply curve is a graphical representation of the quantity supplied of a product at different price levels. The supply curve typically slopes upward, indicating that as the price increases, the quantity supplied also increases.

Here's an example of a supply curve:

Price	Quantity Supplied
$1	100 units
$2	150 units
$3	200 units
$4	250 units
$5	300 units

As we can see, as the price increases from $1 to $5, the quantity supplied also increases from 100 units to 300 units.

The Impact of Price Increases on Supply

So, what happens to the supply of a product when its price increases? According to the law of supply, the quantity supplied of the product also increases. This is because higher prices make it more profitable for businesses to produce and sell the product, leading to an increase in supply.

Here are some key points to remember:

Higher prices lead to higher profits: When prices rise, businesses can make more money by producing and selling more of the product.
Increased production: As prices rise, businesses may increase production to meet the growing demand.
New investments: Higher prices may lead to new investments in production capacity, equipment, and staff.
Increased supply: The quantity supplied of the product increases as prices rise.

Conclusion

In conclusion, when the price of a product increases, the quantity supplied of that product also increases. This is a fundamental principle of economics, and it has a significant impact on the overall market. By understanding the law of supply, businesses and policymakers can make informed decisions about production, pricing, and investment.

Frequently Asked Questions

What happens to the supply of a product when its price decreases? According to the law of supply, the quantity supplied of the product decreases when prices fall.
Is the law of supply always true? While the law of supply is a fundamental principle of economics, it is not always true. There may be exceptions, such as in cases of monopolies or government regulations.
How does the law of supply affect the overall market? The law of supply has a significant impact on the overall market, as it affects the quantity supplied of a product and the prices that businesses charge.

References

Mankiw, G. N. (2017). Principles of Economics. Cengage Learning.
Samuelson, P. A., & Nordhaus, W. D. (2010). Economics. McGraw-Hill Education.
Krugman, P. R., & Obstfeld, M. (2014). International Economics: Theory and Policy. Pearson Education.
Frequently Asked Questions: Understanding the Law of Supply

In our previous article, we explored the law of supply and how it affects the quantity supplied of a product when its price increases. In this article, we will answer some of the most frequently asked questions about the law of supply.

Q: What is the law of supply?

A: The law of supply is a fundamental principle of economics that states that as the price of a product increases, the quantity supplied of that product also increases. This is because higher prices make it more profitable for businesses to produce and sell the product.

Q: Is the law of supply always true?

A: While the law of supply is a fundamental principle of economics, it is not always true. There may be exceptions, such as in cases of monopolies or government regulations. Additionally, the law of supply assumes that businesses are rational and that they will respond to changes in prices by adjusting their production levels.

Q: What happens to the supply of a product when its price decreases?

A: According to the law of supply, the quantity supplied of the product decreases when prices fall. This is because lower prices make it less profitable for businesses to produce and sell the product.

Q: How does the law of supply affect the overall market?

A: The law of supply has a significant impact on the overall market, as it affects the quantity supplied of a product and the prices that businesses charge. When the price of a product increases, the quantity supplied also increases, which can lead to an increase in the overall supply of the product in the market.

Q: Can the law of supply be affected by external factors?

A: Yes, the law of supply can be affected by external factors such as changes in technology, government policies, and weather conditions. For example, a change in technology can make it easier and cheaper for businesses to produce a product, which can lead to an increase in supply.

Q: How does the law of supply relate to the law of demand?

A: The law of supply and the law of demand are two fundamental principles of economics that work together to determine the equilibrium price and quantity of a product in the market. The law of demand states that as the price of a product increases, the quantity demanded of that product decreases, while the law of supply states that as the price of a product increases, the quantity supplied of that product also increases.

Q: Can the law of supply be used to predict future market trends?

A: While the law of supply can provide insights into the behavior of businesses and the market, it is not a reliable tool for predicting future market trends. The law of supply assumes that businesses are rational and that they will respond to changes in prices by adjusting their production levels, but in reality, businesses may not always behave in this way.

Q: How does the law of supply affect the prices of products?

A: The law of supply affects the prices of products by determining the quantity supplied of a product at different price levels. When the price of a product increases, the quantity supplied also increases, which can lead to an increase in the overall supply of the product in the market. This can put downward pressure on prices, as businesses compete with each other to sell their products.

Q: Can the law of supply be used to explain the behavior of businesses in different industries?

A: Yes, the law of supply can be used to explain the behavior of businesses in different industries. For example, in the oil industry, an increase in the price of oil can lead to an increase in the quantity supplied of oil, as businesses respond to the higher prices by increasing their production levels.

Q: How does the law of supply relate to the concept of supply and demand?

A: The law of supply and the concept of supply and demand are closely related. The law of supply states that as the price of a product increases, the quantity supplied of that product also increases, while the concept of supply and demand states that the quantity supplied of a product is equal to the quantity demanded of that product at a given price.

Q: Can the law of supply be used to explain the behavior of consumers in different markets?

A: Yes, the law of supply can be used to explain the behavior of consumers in different markets. For example, in the market for housing, an increase in the price of housing can lead to a decrease in the quantity demanded of housing, as consumers respond to the higher prices by reducing their demand for housing.

Conclusion

In conclusion, the law of supply is a fundamental principle of economics that states that as the price of a product increases, the quantity supplied of that product also increases. This principle has a significant impact on the overall market, as it affects the quantity supplied of a product and the prices that businesses charge. By understanding the law of supply, businesses and policymakers can make informed decisions about production, pricing, and investment.

Frequently Asked Questions: Additional Resources

Mankiw, G. N. (2017). Principles of Economics. Cengage Learning.
Samuelson, P. A., & Nordhaus, W. D. (2010). Economics. McGraw-Hill Education.
Krugman, P. R., & Obstfeld, M. (2014). International Economics: Theory and Policy. Pearson Education.
The Law of Supply: A Guide to Understanding the Behavior of Businesses and Markets.