The supply curve of a good slopes upward to the right because of
A) technological improvements over time.
B) the law of supply.
C) the law of demand.
D) the existence of substitutes in production.
E) the fact that prices tend to rise over time.
The correct answer and explanation is :
The correct answer is B) the law of supply.
Explanation:
The supply curve of a good slopes upward to the right because of the law of supply, which states that, all else being equal, the quantity supplied of a good or service increases as its price rises. This positive relationship between price and quantity supplied is depicted by an upward-sloping supply curve. To understand this, let’s break down the reasons behind the upward slope:
- Profit Incentive: Producers are willing to supply more of a good when the price increases because they can potentially earn higher profits. As prices rise, the potential revenue for a producer increases, making it more worthwhile to produce and offer more of the good in the market. This explains why producers are incentivized to increase the quantity supplied as the price goes up.
- Higher Costs of Production: In many cases, as the price of a good increases, the costs of production may also rise. For instance, higher demand may require producers to use more expensive or less efficient resources, which can increase the cost of producing each additional unit. However, because the price of the good has increased, producers are still willing to supply more because they are receiving higher returns that compensate for the rising costs.
- Resource Allocation: When the price of a good rises, it may attract more producers or resources to enter the market. Resources that were previously used for other goods may be redirected to produce more of the higher-priced good, increasing its supply. This shift in resources further reinforces the upward-sloping supply curve.
While other factors, such as technological improvements (A), the existence of substitutes in production (D), or general price trends (E), can influence supply, the fundamental reason for the upward slope of the supply curve is the law of supply. The law of supply highlights the direct relationship between price and quantity supplied, leading to the characteristic upward slope of the supply curve.