Quiz 3: Demand, Supply, and the Market Process
1. Pork and beef are supposed to be substitutes of one another. This means that they can be used in place of one another. This means that there would be an increase in current demand for beef, if the price of pork rises. 2. An increase in the consumer income means an increase in the purchasing power of the consumer. Thus, it shall also increase the current demand for beef. 3. The higher price of feed grains used to feed cattle shall affect the supply of beef and not the demand for it. 4. The widespread outbreak of mad cow or hoof and mouth disease shall also affect the supply of beef and not its demand. 5. An increase in the price of beef shall reduce its quantity demanded. Thus, from the analysis of all the factors it is visible that option (a) and (b) are the correct factors.
The law of supply states that "other things remaining the same, the price of a commodity and its quantity supplied has a positive relationship with each other". This means that if the price of a commodity rises, its quantity supplied also increases and if the price of a commodity falls, its quantity supplied also falls. a. Gasoline : this fuel good directly conforms to the law of supply in general. This means that a rise in price of gasoline will increase its quantity supplied and a fall in its price shall decrease its quantity supplied. b. Cheating on exams : this good is also not affected by the general law of supply. It's a qualitative aspect and is affected by other factors that may affect the increase in cheating on exams. c. Political favors from legislators : this good is not affected by the general law of supply. It is affected by other factors that affect the supply and that are elements political disruptions. d. The services of heart specialists : this good is also not affected by the law of supply in general. This means that the services of heart specialists are not based on their fee. They are meant to serve the community. They may increase their fee but their services shall always be available to the ones in need at any point of time. e. Children : this good is also not affected by the law of supply. There is no relationship between children and the price. f. Legal divorces: this good is also not affected by the law of supply in general. The number of legal divorces depends upon other factors that are affecting the family life of couples like ling working hours, misunderstandings and so on. It has no relationship with the price.