What does the law of supply state?
A) The quantity demanded rises as the price rises.
B) The price of a good decreases as its supply increases.
C) The quantity supplied of a good or service is positively related to its price, all else equal.
D) The quantity supplied of a good or service is negatively related to its price.
Answer (2)
The law of supply states that the quantity supplied of a good or service is positively related to its price, all else equal. This means that higher prices lead to an increase in the quantity supplied. Therefore, the answer is C.
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The Law of Supply is an important principle in Economics, which is a part of Business studies. It describes how the market behavior of sellers changes in response to changes in price.
According to the Law of Supply:
C) The quantity supplied of a good or service is positively related to its price, all else equal.
This means that as the price of a good or service increases, the quantity of that good or service that producers are willing to supply also increases, assuming all other factors remain constant. Conversely, if the price decreases, the quantity supplied will decrease. This is because higher prices provide an incentive for producers to supply more as they can potentially earn higher revenues.
Why this law is important:
Market Operations : It helps to understand how supply responds to changes in price, which is crucial for producers in making decisions about how much to produce.
Price Determination : It plays a role in determining prices in the market along with demand-side forces.
Resource Allocation : Understanding supply helps in better allocation of resources by guiding producers to invest more or less in production based on price changes.
Overall, the Law of Supply is a basic but vital concept that helps explain the relationship between price and the quantity of goods available in the market.
