Sample scenario: A factory produces blue and green widgets, both at equal production costs. In one day, the factory can make 20 widgets of either color. The factory has been making 10 blue and 10 green widgets per day because they both sell for $5.00. Recently, the price of blue widgets has increased from $5.00 each to $8.00 each. How does the law of supply say the factory will respond to the increase in the price of blue widgets?

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Social Studies

Carlie Shea

7 September, 13:03

Sample scenario: A factory produces blue and green widgets, both at equal production costs. In one day, the factory can make 20 widgets of either color. The factory has been making 10 blue and 10 green widgets per day because they both sell for $5.00. Recently, the price of blue widgets has increased from $5.00 each to $8.00 each. How does the law of supply say the factory will respond to the increase in the price of blue widgets?

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Alfonso Michael · Answer 1

It depends on how much competition there is in that market for the production of blue widgets. The price of blue widgets fall back quickly according to how much companies there is.

Also depends how much expendable capital the investors are willing to invest to fill this demand. Law of supply and demand does not also measure the capital it will take fill the gap between supply and demand.

The price of blue widgets could stay at eight dollars if consumers are competitive enough to pay top dollar for this product. The supply will not increase unless the investors take out credit or invest more money into their company which would increase the expenses for the company reducing profits.