Theory of Supply

Law of supply states that supply will increase as the price of the goods rises and decrease as the price falls, other factors remaining constant.

A subsidy to producers will reduce the production cost leading to an increase in supply. This shifts the supply curve rightward.

Movement along the supply curve is caused due to the change in the price of the commodity, other factors affecting supply remaining constant.

Change in quantity supplied refers to the change in supply of a good due to the change in the price of that good only. An increase in quantity supplied of a good due to rise in its own price is called the expansion of supply and a fall in quantity supplied due to a fall in its own price is called the contraction of supply.

A change in supply due to the change in some factors other than its own price leads to shift in supply curve. In case of an increase in supply, the curve shifts towards right and in case of a decrease, it shifts towards left.