Certified Supply Chain Professional (CSCP) Practice Exam

What does the law of supply indicate?

1. Price drop leads to more supply

2. The pricier the good/service, the more the supply

3. More demand leads to less supply

4. Less supply affects price negatively

The correct answer is: The pricier the good/service, the more the supply

The law of supply states that, all else being equal, an increase in the price of a good or service results in an increase in the quantity supplied. This principle aligns with the concept that suppliers are more willing and able to produce and sell products at higher prices because it becomes more profitable for them to do so. As the price rises, the potential for greater revenue incentivizes suppliers to allocate more resources towards production, thereby increasing the overall supply in the market. This relationship reflects a fundamental aspect of market dynamics, where suppliers respond to price changes in a predictable manner, emphasizing the connection between price and willingness to supply. In contrast, other options do not accurately depict the law of supply: a price drop does not typically lead to more supply, increased demand does not directly correlate with less supply, and less supply generally leads to an increase in price, not a negative effect on it. Thus, the correct understanding of the law of supply is encapsulated in the idea that higher prices lead to increased supply.