There are certain exceptional cases, where the law of supply does not operate. They are discussed below:
(1) Rare Goods:
The law is not applicable in case of rare art pieces of painting. The supply of such things is fixed. Whatever may be price of such commodities, the supply will remain the same.
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(2) Labour Market:
The law of supply does not hold good sometimes in the labour market. A rise in price of labour (wages) sometimes leads to a fall in amount of labour supplied in the market.
The reason is simple. First, with the rise in wages, labourers are now able to earn the same amount of income by working for a smaller number of hours. Secondly, with the rise in general level wages, there would be less need for children and females to work.
(3) Expectation of Price Change:
The law does not hold good when the producers expect further fall or rise in the price. The producers may release larger quantities of commodity to the market at a lower price if they anticipate further fall in the price of commodity. Similarly, they may not release more of the commodity to the market if they anticipate further rise in the price of the commodity.
(4) Dispose of Old Stock:
The law of supply does not hold well when sellers want to dispose of the old stock. Say for example Bata Shoe Company makes a “clearance sale” during puja, they dispose of the old stock at lower prices.
(5) Auction Sale:
When auction sales are made the law of supply does not hold good. The auction good may be sold at any price.
(6) Need for Cash:
When a seller due to some reasons needs cash immediately, he supplies more even at lower prices.
(7) Change in Non-Price Determinants:
Lastly, when other things like, tastes, habits, fashion and incomes do not remain constant law of supply will not hold good.