Suppliers have an incentive to increase aggregate output whenever the price level rises faster than the cost of production.

Question

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When the price level rises faster than the cost of production, suppliers are able to earn higher profits by increasing their aggregate output. As a result, they have an incentive to increase their output to take advantage of the higher prices. This is the basic principle behind the law of supply, which states that suppliers will produce more of a good or service as its price rises, all other things being equal.

Suppliers Have an Incentive to Increase Aggregate Output Whenever the Price