Question

A fundamental characteristic of the supply side of markets for goods and services is given by the law of supply, which states that:

1) as the price of a good increases, supply will increase
2) as the price of a good decreases, supply will decrease
3) as the price of a good increases, supply will increase, holding all other factors constant
4) as the price of a good decreases, supply will decrease, holding all other factors constant
5) as the price of a good increases, quantity supplied will increase
6) as the price of a good decreases, quantity supplied will decrease
7) as the price of a good increases, quantity supplied will increase, holding all other factors constant
8) as the price of a good decreases, quantity supplied will decrease, holding all other factors constant

Answer 1

The law of supply states that as price decreases, quantity supplied decreases, holding all other factors constant. This explains the positive relationship between price and quantity supplied.

Step-by-step explanation:

The law of supply is a fundamental characteristic of the supply side of markets for goods and services. It states that as the price of a good decreases, the quantity supplied will decrease, assuming all other factors remain constant. This means that when the price of a good is high, producers are willing to supply a larger quantity, but when the price decreases, producers are less willing to supply the same quantity.

For example, let's consider the market for apples. If the price of apples increases, apple farmers are incentivized to produce more apples because they can earn higher profits. They may plant more apple trees, apply more fertilizers, or hire more workers to harvest the apples. On the other hand, if the price of apples decreases, apple farmers may reduce their production because it becomes less profitable.

This law of supply helps to explain the positive relationship between price and quantity supplied. It assumes that all other factors affecting supply, such as production costs, technology, and government regulations, remain unchanged.