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Difficulty: EasyConcept and Law of Supply

Which of the following statements best expresses the fundamental law of supply in economics?

  1. Producers offer a larger quantity of a commodity for sale at higher prices than at lower prices, ceteris paribus.Answer
  2. B
    Producers supply a smaller quantity of a commodity as its market price increases.
  3. C
    An increase in price causes an outward shift of the entire supply curve to the right.
  4. D
    Quantity supplied changes independently of price signals due to centralized administrative directives.

Answer

Producers offer a larger quantity of a commodity for sale at higher prices than at lower prices, ceteris paribus.
The law of supply states that, holding all other factors constant (ceteris paribus), an increase in price leads to an increase in quantity supplied, showing a direct relationship between price and quantity supplied.

Step-by-Step Solution

1
Identify the basic relationship defined by the law of supply.
The law of supply establishes that price and quantity supplied are directly (positively) related.
Higher prices increase profit margins, incentivizing suppliers to increase output.
2
Differentiate price effects from shift factors.
A change in the good's own price causes a movement along the supply curve (change in quantity supplied), rather than a shift of the supply curve.
Non-price determinants (such as technology and input prices) cause supply curve shifts.

Key Concept

Law of Supply
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Topics

Concept and Law of Supply

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