Give reasons or explain: iii. When price rises, supply expands.

Give reasons or explain:

iii. When price rises, supply expands.


ANSWER:

Supply of a good is positively related to the price of a commodity. That is, other things being constant, when the price of a good increases, its quantity supplied also increases. This is because higher prices implies higher profitability for the producers. Consequently, they prefer to increase the sales by increasing supply.

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