Which statement is consistent with the law of supply (holding all else constant)?

• A. As consumer income rises, the quantity supplied of a normal good increases.
• B. As the price of a good rises, the quantity supplied of that good decreases.
• C. At any given price, an increase in production costs causes a movement along the supply curve to a higher quantity supplied.
• D. As the price of a good rises, the quantity supplied of that good increases.

Answer: (D)

Verified step by step guidance

1. Recall the law of supply, which states that, ceteris paribus (holding all else constant), there is a direct relationship between the price of a good and the quantity supplied. Specifically, as the price of a good rises, the quantity supplied increases, and as the price falls, the quantity supplied decreases.
2. Analyze each statement by identifying whether it describes a change in quantity supplied (movement along the supply curve) or a change in supply (shift of the supply curve). Movements along the supply curve occur due to price changes, while shifts occur due to other factors like production costs or income.
3. Evaluate the first statement: 'As consumer income rises, the quantity supplied of a normal good increases.' This relates to consumer income, which affects demand, not supply. Therefore, it does not describe the law of supply.
4. Evaluate the second statement: 'As the price of a good rises, the quantity supplied of that good decreases.' This contradicts the law of supply because quantity supplied should increase with price, not decrease.
5. Evaluate the third statement: 'At any given price, an increase in production costs causes a movement along the supply curve to a higher quantity supplied.' Changes in production costs shift the supply curve rather than causing movement along it, so this statement is inconsistent with the law of supply.