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CA Foundation · Business Economics · Theory of Demand and Supply

Which of the following statements about the law of supply is correct?

The law of supply says that, other things being equal, a higher price leads to a larger quantity supplied, so the supply curve slopes upward. A downward slope describes demand, and buyer income or buyer numbers affect demand rather than supply.

  1. AOther things being equal, a higher price leads to a larger quantity supplied, giving an upward sloping supply curveCorrect
  2. BOther things being equal, a higher price leads to a smaller quantity supplied, giving a downward sloping supply curve
  3. CSupply always rises when consumers' incomes rise
  4. DSupply depends only on the number of buyers in the market

Explanation

The law of supply states a direct relationship between price and quantity supplied, ceteris paribus, so the supply curve slopes upward. The downward-sloping option describes the law of demand. Consumer income and number of buyers are demand-side factors.

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