Question

What is the relationship between the law of supply and the supply curve? What kinds of changes in underlying conditions can cause the supply curve to shift? Give some examples and explain the direction in which the curve shifts.

Answer 1

The supply curve shows the relationship between the market price of the good and

the quantity supplied at that price, other things remaining the same. Each point on

the supply curve reflects the law of demand, i.e., as prices increases supply

also increases. The supply curve is upward sloping.

Shifts in supply are caused by

• Changes in costs of production. Lower costs of product will shift supply curve to the right.
• Technological advances. Supply curve will shift to the right as more goods can be supplied.
• Prices of related goods. If prices of large cars increase, then supply of small cars will increase.
• Supply will also be shift due to bad weather, natural disasters. Supply will decrease and the supply curve shifts to the left.