Question

Think about the law of supply. It states that as prices rises, quantity supplied will rise,...

Think about the law of supply. It states that as prices rises, quantity supplied will rise, and as prices fall, quantity supplied will fall. Now think about the flat-screen TV market. Over the last 15 years or so, the prices have come down significantly, but there are many more flats-screen TVs produced (supplied) today than there were 15 years ago. Does this violate the law of supply? Why or why not?

Homework Answers

Answer #1

It does not violate the law of supply. Note that the law is valid only for changes in own price of the good and not in the prices of other inputs used in the production of the good. Here in case of flat-screen TV market, we have seen that technological development has reduced the cost of manufacturing flat-screen TVs so they are produced more with the same amount of resources used.

This increases the supply and shifts the supply curve of flat-screen TVs rightwards. With unchanged demand (assumed), the price would fall and quantity would rise. However, the law of supply is not violated because the change in quantity supplied is not the result of change in own price of TV but the cost of production.

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