The typical supply curve illustrates that:
price and quantity supplied are unrelated.
other things equal, the supply of the good creates its own demand for the good.
other things equal, the quantity supplied for a good is positively related to the price of a good.
other things equal, the quantity supplied for a good is inversely related to the price of a good.
The Correct Answer and Explanation is :
The correct answer is: other things equal, the quantity supplied for a good is positively related to the price of a good.
This principle is encapsulated in the law of supply, which states that, ceteris paribus (all other factors being constant), an increase in the price of a good leads to an increase in the quantity supplied, and conversely, a decrease in price results in a decrease in quantity supplied. This direct relationship between price and quantity supplied is typically represented by an upward-sloping supply curve on a graph, where the vertical axis denotes price and the horizontal axis represents quantity.
The rationale behind the law of supply is rooted in producers’ motivations to maximize profits. When the market price of a good rises, producing and selling that good becomes more profitable. This incentivizes existing producers to increase their output and may also attract new producers into the market, thereby increasing the total quantity supplied. Conversely, when the price of a good falls, the potential for profit diminishes, leading producers to reduce their output or exit the market altogether, resulting in a lower quantity supplied.
It’s important to note that the law of supply holds true under the assumption that other factors affecting supply remain constant. These factors include production costs, technology advancements, prices of related goods, and producers’ expectations. For instance, a technological innovation that reduces production costs can increase supply even if the market price remains unchanged, effectively shifting the entire supply curve to the right.
While the law of supply describes a general tendency, there are exceptions. Certain goods may not exhibit a positive relationship between price and quantity supplied. For example, some heterodox economists argue that for mass-produced goods, the supply curve can be downward-sloping due to economies of scale, where increased production leads to lower unit costs and prices. citeturn0search14
In summary, the typical supply curve illustrates that, all else being equal, there is a positive relationship between the price of a good and the quantity supplied. This foundational concept in economics helps explain producers’ behavior in response to price changes and is essential for understanding market dynamics.