Basic Elements of Demand and Supply

Exceptions to Law of Supply

When the price of a product is high, more producers are interested in manufacturing the products. On the contrary, if the price of a product is low, manufacturers are less interested in producing the product and therefore the offer for sale is low. However, there are exceptions to law of supply and demand.

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Exceptions to Law of supply

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.

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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.

exceptions to law of supply

8. Out of fashion goods

When goods are in fashion then the sellers can sell at a high price. But there are some goods that go out of fashion and are no longer in vogue. Such goods are sold by the sellers at low prices in order to clear these goods.

9. Economic Slowdown

The businesses pass through different phases and the sellers have to adapt to these business-related changes. During the low economic phases, the sellers may not have an advantage of incremental prices and hence during such tough times, they sell goods even when they do not witness price rise in order to recover costs. So the law of supply is not applicable in this case also.

10. Immediate requirement of funds

The seller may face a time when there is in immediate need of funds. In this situation, he may supply the goods in the market even at lower prices.

Solved Example on Exceptions to Law of Supply

Question: A seller may be willing to sell out of fashion goods at

  1. Low prices
  2. More profits
  3. High prices
  4. None of the above

Ans.

  1. Low prices

The seller may sell out of fashion goods at low prices in order to clear the stock of these goods and realize the amount stuck in inventory.

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