Final answer:
The price increase from $3.50 to $4.50 for tacos results in an increase in quantity supplied from 120 to 180 per week, illustrating the law of supply.
Step-by-step explanation:
The question deals with the economic concept of supply and demand, specifically how an increase in the price of a good typically leads to an increase in the quantity supplied of that good. The scenario described provides an example of this: as the price of tacos increases from $3.50 to $4.50, the quantity of tacos supplied increases from 120 to 180 per week. This example illustrates the law of supply, which states that, ceteris paribus (all other factors being equal), a higher price leads to a higher quantity supplied.
The concept of ceteris paribus is crucial in analyzing the effect of price on supply because it allows us to isolate the impact of price changes without considering other variables that might affect supply or demand. Another important aspect to relate here is the potential creation of a market surplus if the price were set above the equilibrium price, similar to the example given about gasoline pricing in Chapter 3. In that case, the quantity demanded would be lower, and the quantity supplied would be higher, resulting in excess goods that are not purchased by consumers.
Using another example, consider the supply curve for cars mentioned. If the price rises from $20,000 to $22,000 per car, the quantity supplied increases, showing a direct relationship between price and quantity supplied.