Question

Q1.The forces of supply and demand determine the prices which prevail for most goods and services. Take a look again at any Supply/Demand chart. What or who is represented by the segment on the demand curve which is located below the equilibrium price? In truth, this segment represents those would like to buy the particular good if the price was lower, but can’t (or choose not to) buy the good at its currently higher price. Perhaps this is trivial for goods like lattes or services like travel to the Bahamas (it’s not a tragedy that some cannot afford a latte or a trip to Bahamas, right?), but think about other goods, such as antibiotics, or services such as education. If the market sets the price, then there will always be some who can’t quite pay the price required. Does this feature of the market system strike you as immoral? Because “the market” (forces of supply and demand) does not guarantee that everyone who needs antibiotics will get them, should the market be abandoned in favor of some other system of pricing and distributing goods and services? Why or why not?

Q2. Think about the law of supply. It states that as prices rise, quantity supplied will rise, and as prices fall, quantity supplied will fall. Now think about the flat-screen TV market. Over the last 15 years or so, the prices have come down significantly, but there are many more flat-screen TVs produced (supplied) today than there were 15 years ago. Does this violate the law of supply? Why or why not?

Answer 1