ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Economists call this positive relationship between price and quantity supplied-that a higher price leads to a higher quantity supplied and a lower price leads to a lower quantity supplied-the law of supply. The law of supply assumes that all other variables that affect supply are held constant.

Detailed explanation-2: -According to the law of demand, this relationship is always negative: the response to an increase in price is a decrease in the quantity demanded. For example, if the price of scented erasers decreases, buyers will respond to the price decrease by increasing the quantity of scented erasers demanded.

Detailed explanation-3: -The law of supply says that a higher price will induce producers to supply a higher quantity to the market. Because businesses seek to increase revenue, when they expect to receive a higher price for something, they will produce more of it.

Detailed explanation-4: -For example, if, in response to a 20% rise in the price of a good, the quantity supplied increases by 20%, the price elasticity of supply would by 20% over 20% = 1. The Unit Elastic Supply Curve is a Es = 1, % change in quantity = % change in price. There are three reason why supply of a product increases.

Detailed explanation-5: -Restated: there is a direct relationship between price (P) and quantity supplied (Qs). If the product cost is given, a higher price means greater profits and thus an incentive to increase the quantity supplied. Price and quantity supplied are directly related.