The fundamental reason why most supply curves are upward sloping is that
A) consumers substitute lower-priced goods for higher-priced goods.
B) the quantity supplied increases as more firms enter the market.
C) a higher price never reduces quantity supplied by enough to lower total revenue and so higher production is motivated.
D) higher production raises the opportunity costs of production and so price must rise to induce more output.

Question

Quizplus · Accepted Answer

The law of increasing opportunity cost states that as more of a good is produced, the opportunity cost of each additional unit increases. This means that suppliers must receive a higher price to cover their increasing costs and to be willing to supply more of the good. Therefore, the supply curve slopes upward to reflect this relationship between price and quantity supplied. Choices A and B do not explain the fundamental reason why supply curves are upward sloping, and Choice C is not always true as a higher price can reduce quantity supplied in certain circumstances, such as for goods with readily available substitutes.

The Fundamental Reason Why Most Supply Curves Are Upward Sloping