In microeconomics, what does the law of supply state about the relationship between a good’s price and the quantity supplied, holding other factors constant?

• A. As the price of a good rises, both demand and supply increase by the same amount, ceteris paribus.
• B. As the price of a good rises, the quantity supplied falls; as the price falls, the quantity supplied rises, ceteris paribus.
• C. The quantity supplied is fixed and does not change when the price changes.
• D. As the price of a good rises, the quantity supplied rises; as the price falls, the quantity supplied falls, ceteris paribus.

Answer: (D)

Verified step by step guidance

1. Understand that the law of supply describes the relationship between the price of a good and the quantity that producers are willing to supply, holding other factors constant (ceteris paribus).
2. Recognize that 'ceteris paribus' means all other factors affecting supply, such as technology, input prices, and number of sellers, are held constant to isolate the effect of price changes.
3. Recall that the law of supply states that there is a direct relationship between price and quantity supplied: when the price of a good increases, producers are willing to supply more of it.
4. Similarly, when the price decreases, producers supply less of the good, reflecting the incentive to produce more when prices are higher to increase potential profits.
5. Therefore, the correct interpretation is: as the price of a good rises, the quantity supplied rises; as the price falls, the quantity supplied falls, ceteris paribus.