Consider the following statements regarding laws of demand and supply:

1.    The law of demand says that at higher prices, buyers will demand less of an economic good.

2.    The amount of a good that buyers purchase at a higher price is less because as the price of a good goes up, so does the opportunity cost of buying that good.

3.    Producers supply more at a higher price because the higher selling price justifies the higher opportunity cost of each additional unit sold.

Which of the statements given above is/are correct?

Solution

The law of demand states that, if all other factors remain equal, the higher the price of a good, the less people will demand that good. In other words, the higher the price, the lower the quantity demanded. The amount of a good that buyers purchase at a higher price is less because as the price of a good goes up, so does the opportunity cost of buying that good. The law of supply says that at higher prices, sellers will supply more of an economic good. From the seller’s perspective, the opportunity cost of each additional unit that they sell tends to be higher and higher.