Understanding Law of Supply in Microeconomics

So far, you have learnt about demand and its determinants. Now, you all know that to meet the demand for a product in a market, it needs to be supplied. The supply of a product is determined by the businesses or the governments that are engaged in the production and distribution of that product in the market. 

Now, in the upcoming video, you will listen to Chris as he discusses more on the concepts of supply.

So, in the video, you learnt that the total supply of a certain good in a market is the sum of the supply of each firm that produces that good. You also learnt how the different types of firms adapt their supply to achieve favourable economic outcomes that are in line with their individual objectives. In a stable market, the market supply is always equal to the market demand.

Additionally, you understood what supply saturation is and learnt that it can impact businesses that sell saturated goods (goods whose supply has already been met by other players in the market) by generating very low or no profitability. 

Supply saturation is not the end. Firms can continue growth through product innovation, better pricing strategies or even an increase in market demand.

Additional Learning

This article offers a more in-depth understanding of the law of supply and also illustrates assumptions and exceptions to this law.