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EXAMPLE Price and Supply

Let’s take a closer look at how price and quantity supplied are related by returning to the Smiths and their produce business. The Smiths travel to the Montclair Farmers’ Market every Wednesday and Saturday to sell a variety of fruits and vegetables— blueberries, peaches, nectarines, sweet corn, peppers, and cucumbers. However, their specialty crop is the tomato. How should the Smiths decide on the quantity of tomatoes to supply to the farmers’ market? The price they can get for their crop is a major consideration.

The Smiths know that the standard price for tomatoes is $1 per pound. What quantity of tomatoes will the Smiths offer for sale at that price? They decide that they are willing to offer 24 pounds. What if the price of tomatoes doubled to $2 per pound? The Smiths might decide that the price is so attractive that they are willing to offer 50 pounds of tomatoes for sale on the market. In contrast, if the price fell to 50 cents, the Smiths might decide to supply only 10 pounds. Furthermore, at prices under 50 cents per pound, they may not be willing to supply any tomatoes. Look again at the definition of the law of supply. As you can see, it provides a concise description of how producers behave.

1. What does a free enterprise economy depend on?

2. What is one of the major factors influencing demand?

3. When does a change in demand occur?

4. What six factors can cause a change in demand?

5. How do changes in income affect demand curves?

6. What are normal and inferior goods? Give your examples.

7. In what way does migration influence demand?

8. Does advertising have a powerful effect on consumer tastes? Give your examples.

9. Why do automobiles usually go on sale at the end of summer?

10. Why do many people prefer to buy substitutes?

11. What is the difference between substitutes and complements? Give your examples of complements.

12. What happens if the price for one of the complements rises?

13. What are the two most important ideas about the concept of supply?

14. What does the law of supply say?

Task 2. Read the text again and find the definition of the following economic concepts: demand, the law of demand, a change in demand, income, complements, substitutes, market size, consumer expectations, consumer tastes, supply, the law of supply.

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