Final answer:
The law of supply demonstrates a direct relationship between the price of a good and the quantity supplied, where higher prices typically result in an increased quantity supplied. This is a result of producers seeking to maximize profits by responding to price signals, with the understanding that all other factors remain constant ('ceteris paribus').
Step-by-step explanation:
The relationship between price and quantity supplied in the market for a good is encapsulated by the law of supply. This principle asserts a direct correlation between the price of a good and the amount producers are willing to supply. Specifically, as the price increases, the quantity supplied tends to increase as well, and vice versa when prices fall. The rationale behind this is that higher prices usually enhance profit margins, which motivates producers to supply more of the good to maximize profits.
For instance, in the context of gasoline, a price increase leads to actions like expanding exploration, drilling more oil, and investing in infrastructure to support increased production and distribution. These efforts are aimed at capitalizing on the higher prices through increased sales volume. The law of supply is based on the assumption that all other factors affecting supply remain constant, known as 'ceteris paribus'.
Several factors contribute to this relationship, such as production costs, technology improvements, and supplier expectations for future prices. The economic principle at play here is the pursuit of profit, where firms seek to maximize their financial gain by responding to market signals like price changes.