Exceptions / Limitations of Law of supply:
- Expectations of a fall in price:
If the firms anticipate that the price of the product will fall further in future, in order to clear their stocks they may dispose it off at a price that is even lower than the current market price.
- Auction sale:
If the seller is in need of hard cash, he may sell his product at a price which may even be below the market price.
- Clearance sale:
If the firms want to shut down or close down their business, they may sell their products at a price below their average cost of production.
- Agricultural output:
In agricultural production, natural and seasonal factors play a dominant role. Due to the influence of these constraints supply may not be responsive to price changes.
- The backward sloping supply curve of labor:
The rise in the price of a good or service sometimes leads to a fall in its supply. The best example is the supply of labor. A higher wage rate enables the worker to maintain his existing material standard of living with less work, and he may prefer extra leisure to more wages.