Question

5 - microeconomics: zeroing in
learning objective: recognize the effects of supply, demand, and market equilibrium on a business.
what happens to supply when prices increase?
a.) it decreases.
b.) it increases.
c.) it disappears.
d.) it stays the same.

Explanation:

Analyze the question prompt

The question asks: "What happens to supply when prices increase?" This refers to the relationship between the price of a good and the quantity supplied by producers.

Apply economic principles

According to the Law of Supply, there is a direct (positive) relationship between price and quantity supplied, ceteris paribus. When the market price of a good increases, producers face higher potential profits, which incentivizes them to increase the quantity of the good they supply to the market.

Evaluate the given options

• Option (a) "It decreases" contradicts the positive relationship.
• Option (b) "It increases" correctly describes the direct relationship between price and supply.
• Option (c) "It disappears" is incorrect.
• Option (d) "It stays the same" describes a perfectly inelastic supply, which is not the general rule.

Formulate the final response

The correct option is (b) because higher prices encourage businesses to produce and supply more of a product.

Answer:

• a.) It decreases.
• b.) It increases. (Correct answer)
• c.) It disappears.
• d.) It stays the same.