Economics and Personal Finance Practice Exam

The law of supply states that, all else being equal, an increase in the price of a good or service will lead to an increase in the quantity supplied. This relationship exists because higher prices typically incentivize producers to supply more of a product, as they can generate more revenue and potentially increase their profits. Producers are motivated to take advantage of these higher prices, resulting in a greater quantity of goods made available in the market.

This fundamental principle of supply is visually represented by the upward-sloping supply curve, which illustrates that as prices rise, the quantity supplied also tends to rise. Therefore, the correct answer reflects the direct correlation between price increases and quantity supplied, capturing the essence of the law of supply effectively.