For abnormal goods, how will supply behave when price increases and when price decreases
Uhh For example there are 50 pineapples at the store and the price of the pineapples are $2.00! The price is low because there is plenty of supplies! Now there are 25 left and the price goes up to $3.00. So the whole point is that the less supplies there are the higher the price!
Hope this helps!!
For abnormal goods how will price be if supply increases or decrease
Abnormal goods, also known as Giffen goods, are unique in that their demand increases when their price increases, and decreases when their price decreases. As a result, the behavior of supply for abnormal goods when price increases or decreases can be quite different from what we typically observe in economics.
When the price of an abnormal good increases, the quantity demanded increases. This is contrary to the Law of Demand, which states that typically there is an inverse relationship between price and quantity demanded. However, in the case of abnormal goods, the income effect dominates the substitution effect. The income effect reflects the fact that when the price of an abnormal good increases, consumers have less purchasing power for other goods. As a result, they are more likely to rely on the abnormal good, even though its price has gone up.
Given this unique demand behavior, how will supply react when the price of an abnormal good increases? Since consumers are willing to buy more of the good at a higher price, suppliers have an incentive to increase its production and supply in order to meet this higher demand. As a result, the supply of abnormal goods will also increase when their price increases.
Conversely, when the price of an abnormal good decreases, the quantity demanded decreases. This is consistent with the Law of Demand. In this case, consumers have more purchasing power for other goods due to the lower price of the abnormal good. As a result, they are less likely to consume as much of the abnormal good as they did before. This leads to a decrease in the quantity demanded.
Now, how will supply behave when the price of an abnormal good decreases? Since consumers are willing to buy less of the good at a lower price, suppliers have less incentive to produce and supply it. Hence, the supply of abnormal goods will decrease when their price decreases.
In summary, the behavior of supply for abnormal goods is opposite to what we typically observe. Supply of abnormal goods will increase when their price increases and decrease when their price decreases, due to the unique demand characteristics of these goods.