The Law of Supply
The law of supply states that with an increase in the price of goods, the quantity supplied will increase and as the prices reduce, the quantity supplied will reduce, ceteris paribus. The implication here is that the price of a commodity, and the quantity that is supplied are directly related. Here, the quantity of goods that is supplied refer to some units that the buyers are willing and able to buy. This law rests on the assumption that all the other factors, save for the price of the commodity, which affect the supply of the goods remain the same. The law also holds for the production of the majority of the goods and will not only hold when there is no time to produce most of the goods. Similarly, it does not also hold for the goods that cannot be produced at any period during the production process, for instance, the production of the violin.
The supply curve slopes upwards because of two main reasons: the law of diminishing marginal productivity and the objective of profit maximization (Mankin & Taylo,r 2011). As for the law of diminishing marginal productivity, it explains that given the production of more units of a variable factor, the addition that is made to the total production reduces, ‘implying that the cost of production will increase. Hence, one quantity is supplied at higher prices so that it can cover the cost of production. When it comes to profit maximization, the goal of achieving maximum profits can only be achieved by raising the price of goods. It is why at higher prices; the producers will supply more goods.
The market supply curve is derived from aggregating the individual supply curves of the producers. It can be derived by aggregating the supplies of all the individual firms selling a particular commodity at different prices through their horizontal summation. The quantity supplied is taken on the x-axis while the price rests on the y-axis.
Determinants of price elasticity of demand
The price elasticity measures the responsiveness of quantity demanded to a change in price. It is elastic suppose it responds significantly to the changes in price. On the other hand, it is inelastic suppose it responds slightly to the changes in demand. The major determinants of price elasticity of demand include the availability of close substitutes, time horizon and necessities versus luxuries.
a. Bottle water- inelastic since people do not always have to consume bottled water when they can access tap water whenever they feel like, which is free of charge. Most of the times, buying bottle water when one can access tap water is more of a lifestyle option.
b. Toothpaste- Elastic, there is no close substitute to toothpaste, and therefore people will adjust to an increase in price over time.
c. Crest Toothpaste- Inelastic, consumers, can opt for other goods.
d. Ketchup-Inelastic- there are other food spices that can be used for the same purposes as ketchup and consumers can replace it altogether suppose it becomes unaffordable.
e. Diamond bracelets- Inelastic. These are luxury goods although being viewed as a luxury good, or necessity will depend on the intrinsic preferences of the buyer.
f. Microsoft’s Windows Operating System- Elastic given that the hold a huge portion of the market share. It will be affected by the time horizon determinant. Customers will eventually adjust to the market prices.
Private and Public Goods
Public goods are those that are both non-excludable, and they are non-rival too while a private good is excludable and non-rival (Stigliz & Rosengard, 2015). Excludability, in this case, refers to a situation whereby the owner can prevent others from using the good. Otherwise, it is non-excludable. The goods that are produced by the government are social goods and regardless of the investment made in the good, all the consumers enjoy using the good equally. Goods produced by the market are produced by profit maximization and hence the element of excludability will be very effective in allocating prices to the different goods produced.
a. French fries- Market system since it will allow for the creation of employment opportunities in different capacities for serving different customers in the market.
b. Airport screening- it is social good and should be enjoyed in equal capacity by all the people in the airport. It is based on the fact that security is a social responsibility that the government is endowed with. Therefore, it should be produced by the government.
c. Court system- this is a social right and demarcating the accessibility to justice depending on the social class of an individual can breed other social problems. It should be produced by the government to allow for more accountability of judicial procedures. Besides, justice is not related to profit maximization in any way.
d. Mail delivery- there are different customers with different expectations regarding how they expect to get their emails. It means that they will be willing to pay for that extra cost for extra services. Therefore, the market system will be in a position to deliver this best.
e. Medical care- government intervention is vital in subsidizing health care services so as to ensure that the citizens of a country can access health services despite their social class. The government should provide medical care as a social right to the citizens. However, when it becomes a marketing tool, there will be exploitation at the expense of the wellbeing of the citizens.
Mankiw, N. G., & Taylor, M. P. (2011). Microeconomics. Andover: Cengage Learning.
Stiglitz, J. E., & Rosengard, J. K. (2015). Economics of the public sector. New York : W. W. Norton & Company, Inc.,