Question

Other things being the same, what does the positive relation between the price of a commodity and quantity of supply indicate?

• A. Law of demand
• B. Elasticity of supply
• C. Law of supply
• D. Supply function

Hint:

The law of supply states that as the price of a good rises, the quantity supplied increases, reflecting a positive relationship between price and supply.

Answer 1

The Correct Option is C

Step 1: Understanding the Law of Supply:
The law of supply states that, all else equal, there is a direct relationship between the price of a good and the quantity supplied. When the price of a good rises, the quantity supplied increases. Similarly, if the price of the good falls, the quantity supplied decreases. This relationship is illustrated by an upward-sloping supply curve in the graph.
Step 2: How This Relates to Price and Supply:
The positive relationship between price and supply suggests that producers are more willing to produce and sell a good when they can receive a higher price for it. This is due to the potential for greater profitability, which motivates producers to increase supply.
Step 3: Analyzing the Options:
- Law of Demand: The law of demand refers to the negative relationship between price and quantity demanded. It does not apply here, as the question is asking about the relationship between price and supply, not demand.
- Elasticity of Supply: Elasticity of supply measures the responsiveness of the quantity supplied to price changes. While related, this does not directly describe the relationship between price and quantity supplied.
- Law of Supply: This is the correct answer, as it directly describes the positive relationship between price and quantity supplied.
- Supply Function: The supply function represents the mathematical relationship between the price and the quantity supplied, but it does not directly describe the simple positive relationship mentioned in the question.
Step 4: Conclusion and Answer:
The correct answer is (C) because the positive relationship between price and quantity supplied is described by the law of supply.