Question

1. What is supply?

2. What is demand?

3. How does the price system address the problem of alternative uses of time and labor?

Answer 1

1)

In economics, supply refers to the total amount of goods and services which firms, producers laborers or any other economic agents can produce and are willing to produce at different given price points. When talking of a single firm, the supply it is known as individual supply whereas in the context of an entire market it is called as market supply. It can further be extended to the economy as a whole where it is known as aggregate supply.

Other things remaining the same, with an increase in price levels, supply increases and vice versa.

A graphical representation of the supply curve is as follows:-

2)

Demand here refers to the amount of goods and services which are desired by people and at the same time are such that people have the financial backing to purchase the same. Again these can be from the perspective of a single buyer wherein it is referred to as an individual demand schedule or could be market demand schedule as well. On the level of the entire economy, it is known as aggregate demand.

All other things remaining same, the demand rises with a fall in price and vice versa.

The following graph would give more details of the same.

3)

Labour and time both have alternative uses which may be invested in. For example I may chose to work for a field or in a company as an employee. However, it is important to note that price is what defines what is best for a worker. If I get paid more to work in a company, my inclination would be towards spending my time and all my labor effort towards working for the company. Therefore, price defines the choices which people take over their time and labor resources and that also works on the level of the country as a whole. A country spends its time and labor on the work which gives it the best possible price.

Please feel free to ask your doubts in the comments section.