The basic law of supply is that as the price of a commodity rises, so producers expand their supply onto the market. “Other things remaining the constant, as the price of commodity rises, its supply expands and as the price falls, its supply contracts”.

•The law of supply establishes a direct or positive relationship between price and supply.
•Firms will supply less at lower prices and more at higher prices.


There are three main reasons why supply curves for most products are sloping upwards from left to right.
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1.The profit motive: When the market price rises (for example after an increase in consumer demand), it becomes more profitable for businesses to increase their output. Higher prices send signals to firms that they can increase their profits by satisfying demand in the market.

2.Production costs: When output expands, a firm`s production costs rise, therefore a higher price is needed to justify the extra output and to cover these extra costs of production.

3.New entrants coming into the market: Higher prices may create an incentive for other businesses to enter the market leading to an increase in supply.