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INTRODUCTION TO INDIAN ECONOMY 1.9 EXCEPTIONS TO LAW OF SUPPLY PRESENTED BY AYUSSH SANGHI
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EXCEPTIONS TO LAW OF SUPPLY Just like exceptional cases to law of demand we also have some exceptions in case of supply o Let's assume, what if there is decrease in quantity supplied with rise in price and vice versa? This means it is absolutely opposite to what we have studied in case if Law of Supply o Such situations are called as exceptions to the law of supply because they go against this law
FROM SELLER'S POINT OF VIEW - EXPECTATIONS OF FUTURE PRICES In case the sellers have an expectation of the prices to rise in future they adopt wait and watch policy and stop their supply of goods. o Whatever the price may be presently producers may want to supply the goods when the prices rise even more which would get them good returns. o On the contrary, if the sellers expect the prices to fall in the future then they would sell off their goods at existing lower prices in order to avoid losses.
FROM SELLER'S POINT OF VIEW - WEATHER DEPENDANT PRODUCE FROM FARMS o In case of products from the farms weather plays the most important role. Such products may not obey the law of supply as they may not react to changes in prices due to heavy dependency on weather conditions.
FROM SELLER'S POINT OF VIEW - PERISHABLE COMMODITIES Commodities are of different types like long lived and short lived. Not all goods can be stored for a longer period of time. o Certain commodities have verv short shelf life and they need to be made available in the market before they perish. Example: Fruits, sea produce, flowers, meat, vegetables etc. o Hence for such goods the sellers cannot simply wait for a longer time and supply the commodities in the market even when the prices are unchanged.
FROM SELLER'S POINT OF VIEW -FASHIONISTA When you sell goods which are in fashion then the sellers command a higher price. On the other hand there are certain goods that go out of fashion and are no longer in demand. Such goods are supplied by the sellers at low prices in order to clear these goods.
FROM SELLER'S POINT OF VIEW - ECONOMIC SLOWDOWN o The businesses pass through different economic phases like: o Slowdown o Recession Depression Hence sellers have to adapt to these changes accordingly. o During the low economic phases the sellers may not have advantage of high prices and hence during such tough times goods are sold even when they are sold lower than their costs. o Hence the law of supply would not applicable in this case.
FROM SELLER'S POINT OF VIEW MODIFICATION/ CHANGE IN BUSINESS Seller can plan to diversify and enter into a entirely new segment of business by exiting/ continuing the present one o In case the present business is on the verge of close down the seller sells the goods at lower prices simply to clear the existing stock. Hence the law of supply is O Hence the law of supply is not followed.
FROM SELLER'S POINT OF VIEW-REQUIREMENT OF MONEY/ FUNDS In case of a cash crunch situation, the seller may face a time when he is in immediate need of funds. In such a situation he may supply the goods in the market even at lower prices.