What does the law of supply state?

The law of supply articulates the direct relationship between price and quantity supplied, stating that as the price of a good or service rises, the quantity supplied also increases, assuming all other factors remain constant. This is attributed to the fact that higher prices provide an incentive for producers to supply more of the good, as it becomes more profitable to do so.

When producers can receive a greater price for their products, they are more motivated to increase production levels and bring more goods to market to maximize their revenue. Conversely, if prices were to fall, the incentive diminishes, leading to a decrease in the quantity supplied.

This fundamental principle helps to explain how markets respond to changes in price, contributing to the overall movements in supply and demand within an economy. Understanding this relationship is crucial for analyzing market dynamics and predicting producer behavior in response to price shifts.