Question

If the price of a video game increased, what would the law of supply predict about the quantity supplied of the game?

Short answer

The quantity supplied of the video game is expected to increase.

Step-by-step solution

Understanding the Law of Supply

The law of supply states that, other things being equal, when the price of a good rises, the quantity supplied of that good also rises. Conversely, when the price falls, the quantity supplied decreases.

Applying the Law of Supply to the Exercise

In this exercise, we know that the price of a video game has increased. According to the law of supply, this means that suppliers will be inclined to provide more of this video game to the market, assuming other factors remain constant.

Conclusion Based on the Law of Supply

Based on the application of the law of supply, we can conclude that the quantity supplied of the video game is expected to increase as a result of the price increase.

Key concepts

Quantity Supplied

Quantity supplied refers to the amount of a good or service that sellers are willing and able to offer at a given price. It plays a crucial role in how markets function and ensures that the equilibrium between supply and demand is maintained. When suppliers decide on the quantity to supply, they consider production costs and the selling price of the good. If the price at which they can sell an item increases, they are typically more willing to offer more of it to the market.
This is because they can potentially achieve higher profits with each additional unit sold. In the context of our video game pricing scenario, the quantity supplied will adjust according to these principles. As prices increase, the incentive for suppliers to augment their supply also grows. They aim to capitalize on the higher prices by providing more units to meet the anticipated demand.

Price Increase

A price increase is a common occurrence in various markets and can have multiple effects on both consumers and suppliers. When prices rise, it signals to suppliers that there is an opportunity to earn more from selling their goods. The law of supply tells us that with an increase in price, suppliers are generally more willing to produce and sell more of the good. This is because the higher price allows them to cover costs more easily and gain greater profits.

• Consumers might react by purchasing less, especially if the product is not a necessity.
• Suppliers, on the other hand, hurry to increase production to seize the profit advantage.

In our specific exercise, a price increase in video games suggests that suppliers will respond by boosting the number of games available on the market. This helps them optimize their gains while meeting customer demand for the product.

Market Response

Market response refers to how sellers and buyers adjust their behaviors based on changes in market conditions, such as price fluctuations. It reflects the dynamic nature of markets where adjustments help in achieving an equilibrium between supply and demand. When a price increase occurs, it triggers a series of responses. Suppliers, influenced by the desire to maximize profits, tend to increase the quantity supplied.
On the other hand, consumers may adjust by buying less or shifting to alternative products, particularly if the increased price exceeds their willingness to pay.

• The combined actions of both suppliers and consumers determine how the market stabilizes.
• Sustained higher prices could lead to more entrants into the market, further impacting supply.

In the case of our video game example, the market response to the price hike is likely to include increased supply as producers rush to provide more games, balancing the changes in consumer buying patterns.