Final answer:
The Law of Supply states that there is a direct relationship between the price of a good or service and the quantity suppliers are willing to produce and sell, where a higher price results in a higher quantity supplied, and a lower price results in a lower quantity supplied, assuming all other factors are constant.
Step-by-step explanation:
Law of Supply
The Law of Supply is a fundamental principle in economics that describes the relationship between the price of a good or service and the quantity of that good or service that producers are willing to supply. According to this law, there is a direct relationship between price and quantity supplied: as the price increases, the quantity of goods or services that suppliers are willing to offer for sale also increases, and vice versa, assuming all other factors affecting supply remain constant. This behavior is logical and reflects producers' responses to changes in price as an incentive to increase or decrease production.
For example, if the price of gasoline increases, it encourages companies to invest in more resources to produce additional gasoline to maximize profits. Conversely, if the price of gasoline falls, the quantity supplied typically decreases as it may not be profitable to produce at that lower price.
Supply itself refers to the total amount of a good or service available for purchase at any given price point and during a specified time period. It is crucial to understand that the Law of Supply holds true only when 'ceteris paribus'—a Latin phrase meaning 'all other things remaining constant' is in effect. This condition implies that factors other than price, such as technology or input costs, do not change.