Future Business Leaders of America (FBLA) Agribusiness Practice Test

What does the law of supply illustrate in economics?

1. Relationship between supply and demand

2. Relationship between price and quantity

3. Relationship between income and consumption

4. Relationship between goods and services

The correct answer is: Relationship between price and quantity

The law of supply illustrates the relationship between price and quantity, emphasizing that, all else being equal, an increase in the price of a good or service leads to an increase in the quantity supplied. This principle is rooted in the idea that producers are willing to supply more of a good when they can receive a higher price for it, as higher prices can cover the costs of production and potentially lead to higher profits. This positive correlation becomes evident through the upward-sloping supply curve, which visually represents how quantity supplied changes in response to price changes. The other options, while related to economic concepts, do not accurately describe the specific focus of the law of supply. The relationship between supply and demand pertains more to market equilibrium, whereas the relationship between income and consumption refers to consumer behavior and preferences. The relationship between goods and services discusses broader economic activities without specifically addressing the effects of price changes on supply. Thus, option B is the most accurate representation of the law of supply in economics.