How do higher prices function as an incentive for suppliers?

Higher prices function as an incentive for suppliers because they create an opportunity for increased profit margins. When the prices of goods rise, suppliers perceive the potential for greater revenue from selling their products. This heightened potential profit encourages them to ramp up production in order to meet the demand at these elevated price levels. Suppliers are motivated to allocate more resources—such as labor, materials, or technology—toward the production of these higher-priced goods, which in turn can lead to an increase in overall supply in the market.

The other options do not align with the economic principles governing supplier behavior in response to price changes. For instance, higher prices would not discourage suppliers from increasing supply; rather, they provide a clear signal to produce more. Similarly, while suppliers may seek to manage production costs efficiently, higher prices themselves are not a direct compulsion to reduce costs. Lastly, stating that higher prices have no effect on supplier behavior disregards the fundamental law of supply, which indicates that an increase in price typically leads to an increase in the quantity supplied.