Violating Say’s Law

Here’s a Keynesian cartoon from Bob Thaves:

Frank & Ernest

Questions for Econ 101 students (Econ 11 at Silliman):

(1) If supply always exceeds demand, and assuming the usual upward-sloping supply curve and downward-sloping demand curve, wouldn’t the equilibrium price be zero? Why or why not?

(2) And if supply always exceeds demand, wouldn’t the actual price be “too high”?  If so, how can talk be “cheap”? Defend your answer.

(3) What if we consider not “talk” but basic goods and services?  In other words, because of increasing returns to scale, we have potentially more supply than we can ever demand?  Would this mean a persistent deflationary bias?  Is that a bad thing?

Top answers will get extra credit on final grade.


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