Question

1. The law of supply suggests that as price increases suppliers will supply more goods and services. Explain the idea behind the "law" and the role Ceteris Paribus plays in the notion.

2. According to an article reprinted from Forbes.com in a book entitled "Economics for Life", Oprah Winfrey's annual earnings were $260,000,000 or about $37.50 per second of work. Imagine Oprah is at work and drops a $100 bill. Should she pick it up (assuming she can't both work and pick it up)? Why or why not.

3. In the past couple of years a number of politicians, in both Canada and the U.S. have argued the post-secondary education should be free. Use the principles of economics and the analytical tools developed in class to analyze this plan. Do you agree with the idea and why?

Answer 1

Answer 1:

The Law of Supply states that there exists a positive relationshio between price of the good and quantity supplied of the good. As price of the good increases, it becomes profitable for the producers to sell the good and this in turn increases their profitability. As the profitability of the producers increases, they are motivated to sell more and more of the product in the market and this increases quantity supplied of the good in the market. This law holds when we assume the ceteris paribus assumption or other things remaining constant. Here we assume that following factors remain constant:

a. Number of producers selling the good

b. Prices of inputs used in the production process

c. Technological development in the economy.

Thus,  law of supply suggests that as price increases suppliers will supply more goods and services, other things remaning constant.