Which statement best explains the law of supply?

• A. As the price of a good rises (holding other factors constant), the quantity demanded of that good increases.
• B. As consumers’ income rises, the quantity supplied of a normal good increases even if its price does not change.
• C. A decrease in the price of a good causes its supply curve to shift to the right.
• D. As the price of a good rises (holding other factors constant), the quantity supplied of that good increases.

Answer: (D)

Verified step by step guidance

1. Understand the law of supply: It states that, ceteris paribus (holding other factors constant), there is a direct relationship between the price of a good and the quantity supplied. This means that as the price increases, producers are willing to supply more of the good.
2. Identify the key variables involved: The price of the good and the quantity supplied. The law focuses on how changes in price affect the quantity supplied, not on shifts of the supply curve caused by other factors.
3. Distinguish between a movement along the supply curve and a shift of the supply curve: A change in price causes a movement along the supply curve (change in quantity supplied), whereas changes in other factors (like technology or input prices) cause the supply curve to shift.
4. Evaluate the given statements by checking if they describe the relationship between price and quantity supplied correctly: The correct statement should reflect that an increase in price leads to an increase in quantity supplied, holding other factors constant.
5. Confirm that the correct answer matches the law of supply definition: 'As the price of a good rises (holding other factors constant), the quantity supplied of that good increases' correctly captures the essence of the law of supply.