Read the passage carefully and answer the question based on the passage:

Demand and Technology

Consider the case of a local coffee shop that faces rising demand for its products. In response to the increase in demand, the shop owner decided to increase the price of a cup of coffee. As a result, suppliers in the market respond by increasing their supply, hoping to capitalize on the higher price. If the coffee shop invests in a new espresso machine that makes coffee more efficiently, the cost of producing each cup decreases. This leads to an increase in supply and sell more coffee at the same or lower price, benefiting both the producers and consumers. This cost-reduction technology is helpful in the context of the real world.

How does an increase in price affect supply?

It increases the quantity supplied.

The correct answer is Option (3) → It increases the quantity supplied.

An increase in price generally increases the quantity supplied. This fundamental economic principle is known as the Law of Supply. This happens because producers are motivated by profit. When the price of a good or service rises, assuming their production costs remain the same, it becomes more profitable to produce and sell that item. This higher potential for profit incentivizes existing producers to increase their output, and it may also encourage new producers to enter the market. Conversely, if prices fall, producers are less incentivized to supply as much, as their profit margins shrink. This direct relationship between price and the quantity producers are willing and able to supply is why the supply curve typically slopes upwards.