If the demand for a good or service increases, how will prices affect supply?
(1 point)
O Rising prices will boost supply.
O Falling prices will decrease supply.
O Rising prices will decrease supply.
• Falling prices will boost supply.
Falling prices will decrease supply.
If the demand for a good or service increases, rising prices will usually lead to an increase in supply.
To determine the relationship between prices and supply when the demand for a good or service increases, we need to understand the concept of the law of supply. According to the law of supply, as prices rise, the quantity supplied by producers also tends to increase. On the other hand, as prices fall, the quantity supplied by producers tends to decrease.
In this case, if the demand for a good or service increases, the prices are likely to rise since there is greater demand than supply. When prices rise, it creates an incentive for producers to supply more of the good or service to the market, as they are now able to make higher profits. This results in an increase in the quantity supplied, effectively boosting supply.
Therefore, the correct answer is: Rising prices will boost supply.