Question

If you forget the other-things-equal assumption, you can encounter situations that seem to be in conflict with the laws of demand and supply. For example, suppose salsa manufacturers sell 1 million bottles of salsa at $4 a bottle in one year; 2 million bottles at $5 in the next year; and 3 million at $6 in the year thereafter. Price and quantity purchased vary directly, and these data seem to be at odds with the law of demand.

But there is no conflict here; the data do not refute the law of demand. The catch is that the law of demand's other-things-equal assumption has been violated over the three years in the example. Specifically, because of changing tastes and rising incomes, the demand for salsa has increased sharply, as in Figure 3.7a. The result is higher prices and larger quantities purchased.Another example: The price of coffee beans occasionally shoots upward at the same time that the quantity of coffee beans harvested declines. These events seemingly contradict the direct relationship between price and quantity denoted by supply. The catch again is that the other-things-equal assumption underlying the upsloping supply curve is violated. Poor coffee harvests decrease supply, as in Figure 3.7d, increasing the equilibrium price of coffee and reducing the equilibrium quantity.

The laws of demand and supply are not refuted by observations of price and quantity made over periods of time in which either demand or supply curves shift.

This exercise has used the difference between a shift versus a movement along the demand or supply curves to attempt to find exceptions to the Law of Demand and the Law of Supply. Can you envisage cases from your everyday life that might refute these laws?

Answer 1

the demand-supply curve is used to analyze the equilibrium point at which demand and supply for particular goods and services could be observed. The basic principle behind this curve is that "if the price will go up and the demand for the product will go down" simply we can say that at a particular point in time, all other things are content, the price of goods and services will go upward if the demand should be high.

This principle has exemptions also like essential goods, i.e, food items, medical, etc. Giffen goods and Veblen goods ( mostly luxury goods ). but other than this we have another condition like over the time consumer have different taste, raise in income and other factors like many substitutes are available, all this affect demand and supply for a product over the time.

the shift in a curve is different from the movement of a curve ( demand and supply ). as per the law, the movement ( on the demand or the supply curve ) shows the change in either of one variable i.e. let's suppose the price decreased for a particular good then the demand will automatically raise and vise versa. this is called shift on a single curve.

the movement from one curve to another shows that both the demand and supply of a particular product changed. the curve may rais( upward) with additional production unit and demand and supply with time or the curve may(inward ) with a crease in demand and supply at the same time.

EXEMPTION.

we can observe this in day to day life activity. for example in the festivals season, the demand for sweets is much higher, but still, the price does not rush upward much.