Which of the following demonstrates the law of supply?
Select one:
A When the price of leather belts rose, leather belt sellers increase their quantity supplied of leather belts.
B When car production technology improved, car producers increased their supply of cars.
C When sweater producers expected sweater prices to rise in the near future, they decreased their current supply of sweaters.
D When ketchup prices rose, ketchup sellers decreased their quantity supplied of ketchup.
The correct answer and explanation is :
Correct Answer: A – When the price of leather belts rose, leather belt sellers increase their quantity supplied of leather belts.
Explanation (300 words):
The law of supply is a fundamental principle in economics which states that as the price of a good or service increases, the quantity of that good or service that producers are willing to supply also increases, all other factors remaining constant. This is because higher prices can lead to higher potential profits, making production more attractive to sellers. The relationship is directly proportional—when prices go up, supply increases; when prices go down, supply decreases.
Option A clearly demonstrates this principle. It states that when the price of leather belts increased, sellers increased the quantity supplied. This is exactly what the law of supply predicts: producers respond to price incentives by adjusting how much they bring to the market.
Let’s briefly analyze the other options to understand why they do not reflect the law of supply:
- Option B: Talks about an improvement in technology leading to more supply. While this does result in increased supply, it’s due to a change in production efficiency—not a change in price. This relates to a shift in the supply curve, not a movement along it caused by price change.
- Option C: Refers to expectations about future prices. Producers are withholding supply now in anticipation of higher future prices. Again, this is a shift in behavior based on expectations, not a direct response to current price changes, so it doesn’t illustrate the law of supply.
- Option D: Says that when prices increased, sellers decreased quantity supplied. This goes against the law of supply, which would predict an increase in quantity supplied when prices rise.
Thus, only Option A accurately represents the law of supply.