Correct Option: C. Price of the commodity increases
Detailed Explanation:
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Understanding Supply: The quantity supplied of a commodity refers to the amount of that commodity that producers are willing and able to sell at a given price over a specific period. The relationship between price and quantity supplied is typically direct; as the price of a commodity increases, suppliers are incentivized to produce and sell more of it.
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Law of Supply: The fundamental principle that governs this relationship is known as the Law of Supply. It states that, all else being equal, an increase in the price of a good will lead to an increase in the quantity supplied. This is because higher prices can cover the higher costs of production and provide greater profit margins for producers.
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Incentives for Producers: When the price of a commodity rises, it signals to producers that there is a higher potential for profit. This encourages them to allocate more resources (like labor and raw materials) towards the production of that commodity. For example, if the price of wheat increases, farmers may decide to plant more wheat instead of other crops, or they may invest in better technology to increase their yield.
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Example Calculation:
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Suppose the price of a commodity is currently $10, and at this price, producers are willing to supply 100 units. If the price rises to $15, producers may find it profitable to increase their supply to 150 units. This illustrates the direct relationship between price and quantity supplied.
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Graphical Representation:
- If we were to draw a supply curve on a graph, the x-axis would represent the quantity supplied, and the y-axis would represent the price. The supply curve would slope upwards from left to right, indicating that as price increases, the quantity supplied also increases.
Why Other Options Are Incorrect:
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A. Production increases: While an increase in production can lead to an increase in the quantity supplied, it is not the primary driver. The quantity supplied is more directly influenced by price changes. Simply increasing production without a corresponding increase in price may not be sustainable for producers.
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B. Demand increases: An increase in demand can lead to an increase in the equilibrium price, which may subsequently increase the quantity supplied. However, demand itself does not directly cause an increase in quantity supplied. It is the price change resulting from increased demand that influences supply.
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D. Population of the country increases: An increase in population may lead to an increase in demand for goods and services, but it does not directly affect the quantity supplied. The supply side is more influenced by price changes rather than demographic changes.
Revision Summary:
- The quantity supplied of a commodity increases primarily when the price of that commodity increases.
- This relationship is explained by the Law of Supply, which states that higher prices incentivize producers to supply more.
- Other factors like production levels, demand, and population changes can influence supply indirectly but are not the main drivers.
- Understanding the direct relationship between price and quantity supplied is crucial for analyzing market behavior.