Explore the Law of Supply and its critical role in financial markets. Understand how supply dynamics influence pricing, market equilibrium, and economic decision-making for investors.
The Law of Supply is a fundamental principle in economics and finance that establishes the relationship between a good's price and the quantity suppliers are willing to offer. This principle directly influences market behavior, pricing strategies, and investment decisions.
The Law of Supply states that, all else being equal, as the price of a good or service increases, the quantity of that good or service supplied increases. This relationship creates an upward-sloping supply curve, reflecting suppliers' willingness to provide more at higher prices.
| Market | Supply Factor | Impact |
|---|---|---|
| Stock Market | Share Price Increase | More shares offered by sellers |
| Bond Market | Interest Rate Rise | Increased bond issuance |
| Forex Market | Exchange Rate Appreciation | Higher currency supply |
Basic Supply Function:
Qs = f(P)
Linear Supply Curve:
Qs = a + bP
where: