Question

Response Questions Part A To B A) Use Your Own Words For Your Response: What is the law of supply? Give an example of how you have observed the law of supply at work. What is the relationship between the law of supply and the supply curve? B) Use Your Own Words For Your Response: How do markets coordinate the independent decisions of buyers and sellers?

Answer 1

a)

Law of demand states that there is a positive relationship between price and quantity supplied. If the price rises, the quantity supplied will also witness a rise. Fall in price leads to a fall in quantity supplied.

For example, rise in the price of milk leads to rise in the quantity supplied of milk.

Under the law of supply, there is movement along the supply curve or there will not be a shift in the supply curve. Put differently, law of supply means movement on the same supply curve.

b)

Under the free market system, demand and supply forces decide the economic activities. it is the market where buyers and sellers meet each other.

Thus, the market coordinates the actions of all buyers and sellers. All buyers get collected under the total demand or individual demands are aggregated to make total market demand. Similarly, all individual suppliers are summed up to get market supply.