In microeconomics, what does the law of supply state (holding all else constant)?

• A. As the price of a good rises, the quantity supplied of that good rises, and as the price falls, the quantity supplied falls.
• B. Changes in consumer income are the primary determinant of changes in quantity supplied.
• C. As the price of a good rises, the quantity supplied of that good falls, and as the price falls, the quantity supplied rises.
• D. As the price of a good rises, the quantity demanded of that good rises, and as the price falls, the quantity demanded falls.

Answer: (A)

Verified step by step guidance

1. Understand that the law of supply describes the relationship between the price of a good and the quantity of that good that producers are willing to supply, holding all other factors constant (ceteris paribus).
2. Recognize that according to the law of supply, when the price of a good increases, producers are generally willing to supply more of that good because higher prices can cover higher production costs and increase potential profits.
3. Similarly, when the price of a good decreases, producers are willing to supply less of that good because lower prices reduce the incentive to produce and sell as much.
4. Note that the law of supply focuses on changes in quantity supplied in response to price changes, not changes in supply caused by other factors like consumer income or production technology.
5. Therefore, the correct statement of the law of supply is: 'As the price of a good rises, the quantity supplied of that good rises, and as the price falls, the quantity supplied falls.'