Law of supply facts for kids

The law of supply is a basic idea in economics. It explains how much of a product or service businesses are willing to sell. Simply put, if the price of something goes up, businesses want to sell more of it. If the price goes down, they want to sell less. This is because selling more at a higher price usually means more profit for them. So, there's a direct link: as prices rise, the amount supplied also rises. This idea helps us understand why the "supply curve" on a graph usually slopes upwards.

What is Supply?

A supply is the amount of a good or service that producers are ready and able to offer for sale. The law of supply helps us figure out how much of something will be available at a certain price.

Supply and Demand Working Together

The law of supply and demand shows how prices are set in a market. Imagine a popular new snack. If lots of people want it (high demand) but there aren't many available (low supply), the price will likely go up. This higher price then encourages more companies to make and sell that snack, increasing the supply. Eventually, the amount supplied and the amount demanded tend to balance out.

For example, a job that pays more money per hour will attract more people wanting to work. Also, if a bank offers a high interest rate on savings, more people will want to save their money there.

What Changes Supply?

Besides the price, many other things can affect how much of a product or service is supplied. These are called "non-price factors."

Costs of Making Things

If it costs less to make a product, businesses can produce more of it for the same selling price. For instance, if the cost of ingredients or workers' wages goes down, a company can make more items. This increases the overall supply.

Number of Sellers

If more companies start making and selling a product, the total supply of that product in the market will increase. Think about how many different brands of cereal there are!

Technology and Production Capacity

Better technology can make it easier and faster to produce goods. If a factory can make more items in the same amount of time, the supply increases.

Government Rules

Governments can also influence supply.

• Helpful Subsidies: Sometimes, the government gives money (called a subsidy) to businesses to encourage them to produce certain goods, like renewable energy or specific crops. This lowers the cost for businesses, so they can supply more.
• Taxes: On the other hand, taxes on production can make it more expensive to create goods. This might lead businesses to supply less.

Natural Events

For some products, especially in farming, natural events play a big role. Good weather can lead to a large harvest, increasing the supply of fruits and vegetables. Bad weather, like a drought or flood, can reduce the supply.

See Also

• Demand curve
• Economies of scale
• Law of demand
• Supply (economics)
• Supply and demand