Real Estate Council of Alberta Fundamentals Practice Exam

What occurs to the supply of a good when there is a change in quantity supplied due to a price increase?

1. an increase in quantity supplied

2. a decrease in quantity supplied

3. no change in quantity supplied

4. a surplus of goods

The correct answer is: an increase in quantity supplied

When there is a price increase for a good, the typical market response is for the quantity supplied to increase. This phenomenon arises from the basic principles of supply and demand in economics. As prices rise, producers are generally incentivized to supply more of the good because the higher price can lead to greater potential revenue and profit. Manufacturers and suppliers are likely to increase production levels or allocate more resources to producing the good in question, effectively boosting the quantity they are willing to sell at the new, higher price. This behavior is guided by the law of supply, which states that all else being equal, an increase in the price of a good will lead to an increase in its quantity supplied. Therefore, when considering the impact of a price increase, the correct conclusion is that there is an increase in quantity supplied.