Question

What happens to the supply, price, quantity for the Google Home when

1. The cost of materials increase in the production of the Google Home.

2. A new technology is developed in the production of the Google Home

A . increase, increase, increase

B. increase, decrease, increase

C. decrease, decrease, decrease

D. decrease, increase, decrease

Answer 1

1.

Since the law of supply stats that there is a direct relationship between price and quantity supplied and other factors which affect the supply remains same.

The supply curve shows the direct relationship between price and quantity supplied. The determinants are;

Technology, costs of inputs and number of potential suppliers.

When there is change in its own price, then there will be movement along the supply curve while when there is a change in the factors other than price, there will be shifts in the supply curve.

1. When the cost of materials increase in the production of the Google Home, so profitability of the firm decreases, so firm supply less output. Hence supply decreases and supply curve shifts leftward, price increases and quantity decreases.

Hence option d is the correct answer.

2. When a new technology is developed in the production of the Google Home, so the cost of production decreases. Hence the profitability of the firm increases, so firm supply more output. Hence supply increases and supply curve shifts rightward, price decreases and quantity increases.

Hence option b is the correct answer.