The statement 'An increase in price leads to an increase in supply' illustrates which economic concept?

The statement 'An increase in price leads to an increase in supply' illustrates which economic concept?

• A. Law of demand
• B. Law of supply
• C. Law of utility
• D. Law of diminishing returns

Answer: (B)

This statement reflects the law of supply: when the price of a good rises, producers have a stronger incentive to produce and offer more of it for sale, so the quantity supplied increases as price increases, all else being equal. The supply curve for most goods slopes upward because higher prices help cover rising marginal costs and boost potential profits, encouraging firms to allocate more resources to producing that good. This is different from the law of demand, which describes how higher prices tend to reduce the quantity buyers are willing to purchase. The other options—the law of utility and the law of diminishing returns—deal with satisfaction from consumption and how additional inputs yield progressively smaller increases in output, respectively, and do not directly describe how price affects the amount supplied.

This statement reflects the law of supply: when the price of a good rises, producers have a stronger incentive to produce and offer more of it for sale, so the quantity supplied increases as price increases, all else being equal. The supply curve for most goods slopes upward because higher prices help cover rising marginal costs and boost potential profits, encouraging firms to allocate more resources to producing that good.

This is different from the law of demand, which describes how higher prices tend to reduce the quantity buyers are willing to purchase. The other options—the law of utility and the law of diminishing returns—deal with satisfaction from consumption and how additional inputs yield progressively smaller increases in output, respectively, and do not directly describe how price affects the amount supplied.