Explain the law of supply.
The correct answer and explanation is :
The law of supply is a fundamental principle in economics that describes the positive relationship between the price of a good or service and the quantity supplied by producers. According to this law, all else being equal, an increase in the price of a good or service leads to an increase in the quantity supplied, while a decrease in the price results in a decrease in the quantity supplied. In other words, suppliers are willing to produce and sell more of a good when the price is high and less when the price is low.
This behavior can be attributed to the incentives that higher prices provide to producers. When the price of a good rises, producers are motivated by the potential for higher profits, which encourages them to increase production. Conversely, when the price falls, the potential for profit diminishes, prompting producers to cut back on supply.
The law of supply assumes that other factors influencing supply, such as production costs, technology, and government regulations, remain constant (ceteris paribus). If any of these other factors change, the supply curve itself can shift, either increasing or decreasing the overall supply of a good, independent of price changes.
Graphically, the law of supply is represented by an upward-sloping supply curve on a price-quantity graph. The horizontal axis represents the quantity of a good supplied, while the vertical axis represents its price. As price increases, the quantity supplied increases, which is reflected by the upward slope of the supply curve.
This principle is crucial in understanding how markets function. It helps explain the behavior of producers in response to market conditions and plays a significant role in determining equilibrium prices and quantities in competitive markets.
Here is an image that illustrates the law of supply. The graph shows how the quantity supplied increases as the price rises, reflecting the fundamental relationship described by the law of supply.