A Level Economics AQA Practice Exam

What does a rising price signal to producers?

1. To decrease their quantity supplied

2. To maintain their current output

3. To increase their quantity supplied

4. To improve product quality

The correct answer is: To increase their quantity supplied

A rising price signals to producers that there is an opportunity to maximize profits by increasing their quantity supplied. When prices rise, it typically indicates a higher demand for the product, which encourages producers to boost their output in order to take advantage of the higher prices and respond to consumer needs. Producers are motivated to allocate more resources towards production or increase their efficiency, thus increasing the supply in the market. This responsive behavior aligns with the basic principles of supply and demand in economics. In contrast, a fall in price would generally lead to a decrease in quantity supplied, while maintaining current output would not reflect the potential increased profits from higher prices. Improving product quality typically involves considerations beyond just price signals, focusing more on consumer preferences and market competition. Therefore, the correct conclusion from rising prices is indeed that producers are prompted to increase their quantity supplied.