Question

What supply shifts best describe the change in the equilibrium shown in the accompany-ing graph?

Answer 1

There are several reasons of shifts in the supply curve. The supply curve shifts to right or there is increase in quantity supplied at each price level because of the following reasons:

a. Increase in the number of sellers when new firms enter the industry.

b. If cost of the resources or inputs of production used in making a good falls, then the supply curve will shift rightwards.

c. Technological advances that increase production efficiency shift the supply curve to right.

d. If the sellers expect the prices to decrease in future, they will increases their sales in the present.

The supply curve shifts to left because of the following reasons:

a. Fall in the number of sellers when existing firms leave the industry.

b. If there is rise in the price of inputs of production, they the supply of the good declines.

c. Firms become inefficient in their production process.

d. If the sellers expect the prices to increase in future, the supply of the good declines.