Question

What is the law of supply? A. Supply always exceeds demand. B. Supply is always less than demand because of scarcity. C. Supply increases as price increases. D. Supply decreases as price increases.

Short answer

C. Supply increases as price increases.

Step-by-step solution

- Understand the concept of supply

Supply refers to the total amount of a specific good or service that is available to consumers. Businesses and producers create supply.

- Definition of the Law of Supply

The law of supply states that all else being equal, an increase in the price of a good or service results in an increase in the quantity supplied. Conversely, a decrease in the price leads to a decrease in the quantity supplied.

- Analyze the given options

Examine each statement to determine which one aligns with the law of supply: A. Supply always exceeds demand – This is not related to the price-supply relationship.B. Supply is always less than demand because of scarcity – This is incorrect as scarcity affects both supply and demand, unrelated to price.C. Supply increases as price increases – This aligns with the law of supply.D. Supply decreases as price increases – This is the opposite of the law of supply.

- Select the correct answer

Based on the understanding of the law of supply, option C is the correct statement.

Key concepts

Supply and Demand

The concepts of supply and demand form the backbone of economics.
Together, they define the price and availability of goods and services in a market.
**Supply** represents the total amount of a product or service available for purchase.
Businesses produce these goods, looking to sell them at different price points.
**Demand** refers to the quantity of a product that consumers are willing and able to purchase at various prices.
When these two forces interact in the market, they determine the market price and quantity of goods exchanged.
Understanding supply and demand helps explain why products become more or less expensive over time.
For example, if demand increases, but supply remains unchanged, prices will usually rise.
Conversely, an increase in supply without a change in demand typically leads to lower prices.
Knowing how these concepts interplay aids students in grasping more complex economic theories.

Economics Principles

Economics principles serve as the foundation for understanding how markets and economies operate.
One key principle is the law of supply and demand, which explains how the market equilibrium is determined.
**The Law of Supply** states that, all else being equal, an increase in the price of a good will increase the quantity supplied.
This happens because higher prices can lead to greater potential profit, encouraging producers to make more of the good.
On the other hand, if the price drops, the quantity supplied will also decrease.
**The Law of Demand** indicates that, all else being equal, an increase in the price of a good will decrease the quantity demanded by consumers.
The basic idea is that consumers tend to buy less of a good when it becomes more expensive.
Together, these principles explain price movements in a competitive market and help in making better business and economic decisions.

Price-Supply Relationship

The price-supply relationship is a core aspect of the law of supply.
It explains how prices influence the quantity of goods that producers are willing to supply.
As prices increase, suppliers are motivated to produce more, aiming to maximize profits.
For instance, a farmer will grow more wheat if the price per bushel goes up, expecting greater revenue.
Conversely, if the price of wheat falls, the farmer might reduce production because lower prices mean diminished returns.
This positive correlation between price and quantity supplied is a key takeaway in economics.
Understanding this relationship helps explain why, in times of scarcity, prices often rise.
For example, during a shortage of electronic chips, prices surge, prompting manufacturers to increase production to meet demand.
While these responses seem straightforward, they are pivotal in market dynamics and economic equilibrium.