What is the relationship between price and quantity supplied?

Question

BlackTom AI · Accepted Answer

The prompt asks about the relationship between price and quantity supplied, but the provided data lacks the list of answer options to compare. With that gap in mind, I’ll first explain the standard concept and then relate it to the given statement.

In economics, the law of supply states that, ceteris paribus, as the price of a good or service rises, the quantity supplied by producers tends to increase. This positive relationship exists because higher prices make production more profitable, encouraging firms to expand output up to their capacity limits, assuming other factors remain unchanged. Conversely, if prices fall, the incentive to supply diminishes, and quantity supplied typically decreases.

Now consider the given option: 'Positive because as the price increases, suppliers are both willing and able to incur higher costs to increase the quantity supplied.' This phrasing captures the essence of the law of supply by describing a positive relationship between price and quantity supplied. It also highlights two key ideas often involved in supply decisions: willingness (the desire to produce more when profitable) and the ability (the capacity to incur higher costs and ramp up production). In many models, higher price signals allow firms to cover higher marginal costs and expand output, aligning with why the quantity supplied moves up as price goes up.

However, it’s worth noting that, in a broader sense, higher costs are not the direct cause of an increased quantity supplied; rather, higher prices make it worthwhile to cover those costs and produce more. Other factors—such as changes in technology, input prices, taxes, or expectations—can shift the entire supply curve without changing the price-quantity relationship along the curve.

Given that no alternative options are present for comparison, this statement correctly describes the positive relationship between price and quantity supplied and is consistent with the core concept of the law of supply.

Princip of Econ-Microeconomics Module 2 Homework Assignment

What is the relationship between price and quantity supplied?

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