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According to the law of supply, which of the following represents the relationship...

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miguel-elmes | Student, Undergraduate | (Level 1) eNoter

Posted December 14, 2010 at 1:08 AM via web

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According to the law of supply, which of the following represents the relationship between quantity supplied and price?

A. move in same direction.

B. move in the opposite direction.

C. have no impact on each other.

D. cannot be shown on the same graph.

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted December 14, 2010 at 1:19 AM (Answer #1)

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The best answer to this is A.  The quantity supplied and the price of a good or service move in the same direction.  On a graph of supply and demand, the vertical axis is the price.  The supply curve is upward sloping.  Therefore, you can see that the quantity supplied goes up with the price of the good or service.

This makes intuitive sense because the more a good costs (the more you can sell it for) the more you will want to provide of it (all things being equal).  If, for example, you can sell 1 hour of your labor for $1 you probably won't want to work much if you have the choice -- it's not worth it.  But if I'll pay you $100 per hour to work, I bet you'll want to work a lot of hours so you can make a lot of money.

There are other technical reasons for the upward slope of a supply curve, but this is the most intuitive one and it generally helps my students remember the relation between price and quantity supplied.

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