Firms are willing to supply greater numbers of goods when prices rise. This decision is very similar to the intertemporal substitution decision by a working individual.

Question

Quizplus · Accepted Answer

When prices rise, firms can expect higher profits, so they will produce more goods in order to take advantage of the higher price. Similarly, when wages increase over time, individuals may choose to work more hours or save more money in order to take advantage of the higher wages. Both decisions are influenced by changes in prices or wages over time, and involve a trade-off between present and future benefits.

Firms Are Willing to Supply Greater Numbers of Goods When