Pre-IB Economics Practice Exam

The main concept is how price affects the quantity that producers are willing to supply—the law of supply. As the price of a good rises, producers are motivated to increase the quantity they offer for sale; as the price falls, they reduce the quantity supplied. This positive or direct relationship creates an upward-sloping supply curve, reflecting that higher prices cover higher marginal costs and usually improve profitability, encouraging more production or new firms to enter the market. This makes the best choice the one that describes a direct relationship between price and quantity supplied. The other ideas mix up the relationship: an inverse relationship with quantity demanded describes the law of demand, not supply; saying no relationship is incorrect because supply clearly responds to price; and a direct relationship with quantity demanded would be false because price and quantity demanded move in opposite directions.