The law of supply states that, other things equal, when the price of a good
A falls, the quantity supplied of the good rises.
B falls, the supply of the good rises.
C rises, the quantity supplied of the good rises.
D rises, the supply of the good falls.
The Correct Answer and Explanation is :
The correct answer is C: rises, the quantity supplied of the good rises.
Explanation:
The law of supply is a fundamental concept in economics that describes the relationship between the price of a good and the quantity of the good that producers are willing to supply in the market. It states that, all else being equal, as the price of a good rises, the quantity supplied of the good increases, and conversely, as the price of a good falls, the quantity supplied decreases.
This behavior occurs due to the incentives that higher prices create for producers. When the price of a good increases, producers are motivated to supply more of it because they can earn a higher profit by selling it at the higher price. The increase in supply is a direct response to the higher price level, reflecting the increased willingness and ability of producers to produce and sell more of the good.
To put this in simpler terms, imagine a scenario where the price of smartphones rises. Smartphone manufacturers, seeing the higher potential profits, are more likely to increase production to meet the demand. This is why the quantity supplied increases as the price rises. On the other hand, if the price of smartphones decreases, the profit margins shrink, and manufacturers might reduce production, leading to a decrease in the quantity supplied.
It’s important to note that the supply curve in economics is typically upward sloping, which visually represents this positive relationship between price and quantity supplied. If the price were to remain constant, then the supply itself would be fixed, and no change in quantity supplied would occur. However, when we discuss the law of supply, we’re referring specifically to how changes in price cause movements along the supply curve—this is different from a shift in the entire supply curve, which would occur due to factors like changes in production technology, input costs, or other external factors.