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Homework answers / question archive / Because there is a positive relationship between quantity supplied and price
Because there is a positive relationship between quantity supplied and price.
The theory of the firm explains that when goods are sold at a higher price, producers will be more willing to produce goods or services. In conclusion, higher prices will give the producers incentive to produce more.
For example,
At Price = 20, producers are willing to produce 200 goods. At Price = 25, producers are now willing to produce 300 goods. At price 15, producers are less willing, and they produce only 100 goods.
This is a very simplistic example. A more elaborate one would include functions like the supply function and demand function and the price function.
