Assumptions Underlying the Law of Supply
Supply
AO2·HL
Syllabus requirement
Profit maximization, rational behavior, and ceteris paribus assumptions.
Assessment objectives
AO2 Application and Analysis
Higher LevelThis topic is assessed at HL.
Summary
This topic explains the law of supply and the Higher Level assumptions that make the upward-sloping short-run supply curve plausible. It covers firms' profit-seeking incentives, increasing marginal costs caused by diminishing marginal returns in the short run, and the ceteris paribus condition that holds other supply determinants constant. It also notes situations where supply may not respond to price changes or may behave differently.
