Answer :
10.1.1 Two functions of markets:
Determination of Prices: Markets help in setting the prices of goods and services based on supply and demand. When the demand for a product increases, the price tends to increase if the supply remains constant. This interaction between supply and demand helps in determining the prices of various goods and services within the economy.
Facilitation of Trade: Markets provide a platform for buyers and sellers to engage in trade. This exchange of goods and services allows for the distribution of products from producers to consumers, ensuring that people's needs and wants are met. By facilitating trade, markets contribute to the efficient allocation of resources within the economy.
10.1.2 Explanation of the Law of Supply:
The law of supply states that, all else being equal, an increase in the price of a good or service will lead to an increase in the quantity supplied. Conversely, a decrease in the price will result in a decrease in the quantity supplied.
Why does this happen?
Incentive for Producers: Higher prices generally increase the profits that producers can earn from selling their goods or services. This acts as an incentive for producers to supply more in order to maximize profits.
Resources and Production: As prices rise, producers might allocate more resources to produce more of the higher-priced goods. Additionally, with higher prices, some producers who were previously unable to cover their costs might now find it profitable to enter the market, thus increasing the overall quantity supplied.
Overall, the law of supply highlights the direct relationship between price and quantity supplied, assuming other factors remain constant. It is a fundamental principle that helps explain producer behavior in markets.
