What does the law of supply state?

The law of supply asserts that there is a direct relationship between the price of a good and the quantity of that good that suppliers are willing to sell. Specifically, as the price of a good increases, suppliers are incentivized to produce and offer more of that good to the market. This occurs because higher prices generally increase potential revenues, encouraging producers to allocate more resources toward the production of that good.

When the price increases, producers are typically able to cover their production costs and may achieve higher profit margins, which motivates them to increase the quantity they supply. This fundamental principle underlies much of market behavior, where price acts as a signal to suppliers about the potential profitability of providing certain goods.

In contrast, the other choices highlight different economic concepts. The first choice misinterprets the relationship stated in the law of supply by implying that supply decreases as prices fall, which pertains instead to how demand might behave. The second choice contradicts the law of supply by claiming that higher prices lead to lower quantity supplied, which misunderstandings the foundational economic principle. The third choice is related to the law of demand, emphasizing consumer behavior rather than supplier actions.