Why does supply slope up?

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BlackTom AI · Accepted Answer

First, let's restate the question and the answer choices to be clear about what is being analyzed.
Question: Why does supply slope up?
Options:
- At higher prices, suppliers can profitably produce using more expensive techniques and inputs.
- The cost of producing a given good is the same, no matter how many are produced.
- Producers charge the maximum price that they can get.
- If supply did not slope up, it would not intersect with demand.

Option 1: At higher prices, suppliers can profitably produce using more expensive techniques and inputs.
This explanation aligns with the fundamental idea behind the upward-sloping supply curve: as the price rises, it becomes worthwhile to use more costly but higher-quality inputs or production techniques that raise overall costs, enabling greater quantity supplied. In other words, higher prices expand the set of profitable production technologies and resource allocations, which increases quantity supplied. This knocks on to the intuition that higher prices incentivize more output by improving profitability for producers.

Option 2: The cost of producing a given good is the same, no matter how many are produced.
This statement conflicts with the basic cost structure of production. In most real-world scenarios, costs can change with scale due to factors like diminishing returns, input costs, or required capital, which means costs are not constant as output changes. Therefore this option undermines the reason supply slopes upward.

Option 3: Producers charge the maximum price that they can get.
This is a misunderstanding of how supply behaves. While producers care about price to maximize profits, the supply curve reflects the relationship between price and quantity supplied, not an assertion that producers always set the absolute maximum price. Market prices emerge from interactions with demand; a willingness to charge a maximum does not by itself explain why higher prices induce higher quantities.

Option 4: If supply did not slope up, it would not intersect with demand.
This mixes up the concept of market equilibrium with the shape of the supply curve. The intersection with demand occurs due to the behaviors of both supply and demand, not solely because supply slopes upward. Furthermore, there can be markets where supply is perfectly inelastic or downward-sloping in theory for some goods, but the standard explanation for the upward slope is tied to rising marginal costs and the opportunity to employ more costly production at higher prices. Hence this statement is not a direct or sufficient reason for why supply slopes upward.

ECON 201 Quiz 2: Ch 3 on S&D

Why does supply slope up?

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