1. Problem 2:
a)What is the Law of Supply?
How do we illustrate the Law of Supply? Give an example of the Law of Supply use two to four
sentences to explain your example.
b) Indicate whether the following are considered a change in supply or a change in quantity
supplied and why:
i. Cold weather in Florida destroys a lot of the orange crop. Therefore, there are fewer oranges in
the supermarket.
ii. The price of leather goes up. This induces manufacturers of leather shoes to decrease
production.
Solution
1. law of supply states that other factors remaining constant, higher the price, greater the quantity
supplied and lower the price, lower the quantity supplied. according to law of supply, price and
quantities supplied are positively related. in simple words it means that if the price of a product is
higher, the supply of the product will be higher and vice versa.
it states the relationship between price of a product and the quantity supply of a product.
b.
i. because of the bad weather in Florida, the supply of orange will be drastically declines, means
the supply of oranges are decreased. the reason is bad weather.
ii. the cost of raw material goes up, and it leads to increase the cost of production. if so, the
product price has to be increased and it leads to decrease the demand for the product. according
to the principle of law of demand "if the price of a product is higher the demand for the product
will be low".
here, the quanity supply will be decline, because the cost of inputs is increased.