Question

when the law of increasing cost , the demand decreases and supply increases ? for example , shortage of santizer ? so, the price increases ? can you help explains ?

Answer 1

The law of increasing cost explain that the cost will be more than average when all the factors of production at maximum output and efficiency. For example, if economy produce only two goods, cycle and strawberry. If all the factors of production are used for producing strawberry, then the production of cycle will be zero. The reverse may also possible. There are three major assumptions used in this law. They are full employment in the economy, best technology used and the efficiency of production at its maximum level. If the economy is at maximum for all the inputs, the unit cost will be more expensive. With rise in the level of cost, the prices will also increase. This makes the producer to impose high level of price for their products. Thus the supply increased and the demand fall down.
Assume that there is shortage in the availability of sanitizers. The producer will impose high price for this product. The situation was high demand for this product will tend the consumer to buy that product at any level of prices. This makes profit to the producers. The increasing cost of the production of sanitizers lead to the raising of pries in the market. But the profitability of sanitizer producers was fall down. Because they want to pay a high amount for inputs which used in the production. This low level profit is maintained through the imposition of high price over the products. The increasing price level wants to remain profitable.