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Chapter 11: Q. 16 (page 291)

What is Say鈥檚 law?

Short Answer

Expert verified

According to Say's law, supply is the source of demand.

Step by step solution

01

Concept introduction

Say's law states that supply can never surpass demand.

02

Explanation

Items cannot be overproduced in the long run because the producers of the commodities also produce the purchasing power to purchase other goods. Because every sale is a source of money for someone, the supply value must be matched by a demand value someplace else in the economy.

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Most popular questions from this chapter

Suppose Mexico, one of our largest trading partners and purchaser of a large quantity of our exports, goes into a recession. Use the AD/AS model to determine the likely impact on our equilibrium GDP and price level.

The imaginary country of Harris Island has the aggregate supply and aggregate demand curves as Table 11.3 shows.

Price Level
AD
AS
100
700
200
120
600
325
140
500
500
160
400
570
180
300
620

a. Plot the AD/AS diagram. Identify the equilibrium. b. Would you expect unemployment in this economy to be relatively high or low?

c. Would you expect concern about inflation in this economy to be relatively high or low?

d. Imagine that consumers begin to lose confidence about the state of the economy, and so AD becomes lower by 275 at every price level. Identify the new aggregate equilibrium.

e. How will the shift in AD affect the original output, price level, and employment?

Would a shift of AD to the right tend to make the equilibrium quantity and price level higher or lower? What about a shift of AD to the left?

Table 11.4 describes Santher's economy.

Price Level
AD
AS
501000250
60950580
70900750
80850850
90800900

a. Plot the AD/AS curves and identify the equilibrium.

b. Would you expect unemployment in this economy to be relatively high or low?

c. Would you expect prices to be a relatively large or small concern for this economy?

d. Imagine that input prices fall and so AS shifts to the right by 150units. Identify the new equilibrium. e. How will the shift in AS affect the original output, price level, and employment?

If the economy is operating in the neoclassical zone of the SRAS curve and aggregate demand falls, what is likely to happen to real GDP?
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