Unit 2.2 · Supply
Assumptions Underlying the Law of Supply
AO2HL
Syllabus Requirement
Profit maximization, rational behavior, and ceteris paribus assumptions.
Assessment Objectives
AO2Application and Analysis
HLThis topic is assessed at Higher Level only.
Summary
The law of supply indicates that, all else being equal, an increase in the price of a good or service leads to an increase in the quantity supplied, while a decrease in price results in a decrease in quantity supplied. Understanding this law requires knowledge of the assumptions regarding producer behavior, costs, and production processes that underpin it, especially at the Higher Level of study in IB Economics.