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CSEET · Economic and Business Environment · Basics of Demand and Supply and Forms of Market Competition

According to the law of supply, when the price of a commodity rises and other factors remain unchanged, what happens to the quantity supplied?

Quantity supplied increases. The law of supply states a direct relationship between price and quantity supplied when other factors stay constant, because a higher price raises profitability and encourages producers to offer more units in the market.

  1. AIt decreases
  2. BIt increasesCorrect
  3. CIt remains constant
  4. DIt becomes zero

Explanation

The law of supply states a direct relationship between price and quantity supplied, ceteris paribus. A higher price makes production more profitable, so producers offer more. The option saying quantity decreases describes the law of demand, not supply.

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