DECA Sports and Entertainment Marketing Practice Exam

What does the Law of Supply state regarding price changes?

1. Supply decreases as prices increase

2. Supply remains constant regardless of price

3. Supply increases as prices increase

4. Supply is inversely related to demand

The correct answer is: Supply increases as prices increase

The Law of Supply states that, all else being equal, an increase in the price of a good or service leads to an increase in the quantity supplied. This relationship occurs because higher prices typically incentivize producers to supply more of a good or service in order to maximize revenue potential. When the price rises, suppliers are often willing to produce and sell more because the potential for higher profits increases. In the context of the other options, the idea that supply decreases as prices increase contradicts the basic principle of the Law of Supply. The notion that supply remains constant regardless of price overlooks the dynamic nature of supply decisions made by producers based on price incentives. Lastly, the idea that supply is inversely related to demand refers to a different economic principle, which does not pertain specifically to price changes in the context of single goods or services. Thus, recognizing that supply typically increases with price is essential for understanding market behaviors and producer incentives as outlined by the Law of Supply.