What is the law of supply?

The law of supply states that there is a direct relationship between the price of a good or service and the quantity supplied by producers in the market. When prices increase, producers are willing to supply more of the good because higher prices provide an incentive to produce more to maximize profits. This is due to the fact that as the potential revenue from selling the good increases, it becomes more worthwhile for suppliers to produce additional units.

In contrast, if prices were to decrease, the incentive for producers to supply that good diminishes since lower prices can lead to reduced profits, resulting in a decrease in the quantity supplied. Thus, the correct answer highlights that an increase in prices leads to an increase in quantity supplied, capturing the essence of how supply responds to price changes in the market.