Law of Supply

Define the term "Law of Supply."

• The relationship between price and demand.

• The principle that supply increases as price increases.

• The concept that demand decreases as price increases.

• The idea that supply decreases as price increases.

Answer explanation

The Law of Supply states that as the price of a good increases, the quantity supplied also increases. This principle reflects the direct relationship between price and supply, making the correct choice the principle that supply increases as price increases.

Which term describes the increase in supply due to a price rise?

• Contraction

• Expansion

• Equilibrium

• Stagnation

Answer explanation

The term 'Expansion' describes the increase in supply as prices rise. This occurs because higher prices incentivize producers to supply more of a good or service to the market.

What happens to the supply of a good if the price decreases, according to the Law of Supply?

• Supply increases

• Supply decreases

• Supply remains constant

• Supply fluctuates

Answer explanation

According to the Law of Supply, if the price of a good decreases, suppliers are less willing to produce and sell that good, leading to a decrease in supply. Therefore, the correct answer is that supply decreases.

What happens when there is a shortage?

• Prices tend to fall

• Prices remain constant

• Prices tend to rise

• Supply increases

Answer explanation

When there is a shortage, demand exceeds supply, leading to increased competition for the limited goods. This typically causes prices to rise as consumers are willing to pay more to secure the available products.

What is another term for excess supply?

• Surplus

• Shortage

• Equilibrium

• Stability

Answer explanation

Excess supply occurs when the quantity of a good available exceeds the quantity demanded, leading to a surplus. This term specifically describes the situation where supply outstrips demand.

What does 'ceteris paribus' mean in the context of the Law of Supply?

• All factors are changing.

• All factors are constant.

• Only supply factors change.

• Only demand factors change.

Answer explanation

'Ceteris paribus' means 'all other things being equal.' In the context of the Law of Supply, it indicates that all factors are constant, allowing us to isolate the effect of price changes on supply.

A Supply Curve is most often shown with this slope on a graph.

• Positive

• Negative

• Horizontal

• Vertical

Answer explanation

A Supply Curve typically slopes upward, indicating that as the price increases, the quantity supplied also increases. This positive slope reflects the direct relationship between price and quantity supplied.

What does this curve represent?

• demand

• supply

• equilibrium

• shortage

Answer explanation

The curve represents supply, indicating the relationship between the price of a good and the quantity supplied. It shows how much of a product producers are willing to sell at different price levels.

What does this curve represent?

• supply

• equilibrium

• demand

• surplus

Answer explanation

The curve represents demand, which shows the relationship between the price of a good and the quantity consumers are willing to purchase. It typically slopes downward, indicating that lower prices lead to higher demand.

The point in the middle of the two curves represents or shows....?

• Market Equilibrium

• An increase in supply

• A shortage

• A surplus

Answer explanation

The point in the middle of the two curves indicates Market Equilibrium, where the quantity supplied equals the quantity demanded, resulting in a stable market condition.