Why does the supply curve slope upward?
Group of answer choices
Supply curves slope upward because: rising prices provide producers with a less profit incentive, as more people will be buying, so prices come down.
As the price of a given commodity increases, the quantity supplied increases (all else being equal).
As price of a commodity rises, quantity supplied decreases.
The correct answer and explanation is :
The correct answer is:
As the price of a given commodity increases, the quantity supplied increases (all else being equal).
Explanation:
In economics, the supply curve shows the relationship between the price of a good or service and the quantity that producers are willing to offer for sale at that price, assuming all other factors remain constant. The curve typically slopes upward from left to right, indicating a direct or positive relationship between price and quantity supplied.
This upward slope occurs for several key reasons:
- Profit Incentive: When the price of a good or service increases, it generally leads to higher potential profits for producers. Higher prices make it more worthwhile for producers to increase their output because they can sell the good for more money, covering their costs and making a greater profit. Therefore, as prices rise, producers are willing to supply more of the good to take advantage of these higher profits.
- Higher Marginal Cost of Production: As producers increase production, they may face higher costs, especially when increasing output requires using less efficient resources or paying for additional labor and raw materials. To compensate for these rising costs, producers need higher prices to continue expanding the quantity supplied. This explains why the supply curve typically slopes upward: to incentivize producers to supply more, higher prices must be offered.
- Substitution Effect in Production: When the price of one good increases, producers may shift resources away from producing less profitable goods to focus more on the higher-priced good. This change increases the quantity supplied of the more expensive good, further contributing to the upward slope of the supply curve.
In summary, an increase in price leads to an increase in the quantity supplied because producers are motivated by the potential for higher profits, and they are willing to produce more when the price makes it financially attractive.
Image:
Here is an illustration of the upward-sloping supply curve, showing the relationship between price and quantity supplied. As price increases, producers are willing to supply more of the good, which is why the curve slopes upward.