In microeconomics, the law of supply states that, holding other factors constant, what happens to the quantity supplied of a good when its price increases?

• A. Quantity supplied stays constant because price changes affect only demand, not supply.
• B. Supply shifts to the left because producers will always reduce output when price rises.
• C. Quantity supplied decreases (there is a negative relationship between price and quantity supplied).
• D. Quantity supplied increases (there is a positive relationship between price and quantity supplied).

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the law of supply, which states that, ceteris paribus (holding other factors constant), there is a positive relationship between the price of a good and the quantity supplied.
2. Step 2: Recognize that when the price of a good increases, producers are generally willing to supply more of that good because higher prices can cover higher marginal costs and increase potential profits.
3. Step 3: Differentiate 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), not a shift of the supply curve itself.
4. Step 4: Note that the quantity supplied increases as price increases, which is a direct movement along the supply curve, reflecting the positive relationship between price and quantity supplied.
5. Step 5: Conclude that the correct interpretation of the law of supply is that an increase in price leads to an increase in quantity supplied, not a decrease or a shift in supply.