Question

1. According to law of supply: an increase in price will cause an increase in supply of the commodity

a. True

b. False

.

2. An increase in input price will always cause increase in supply

a. True

b. False

Answer 1

1. This statement is false.

The law of supply states that price and quantity supplied are positively related to each other. A rise in price leads to an increase in quantity supplied and vice versa. So, there will be an increase in the quantity supplied and not the supply as changes in supply are due to change in factors other than price. So, this statement is false.

2. This statement is false.

An increase in the price of inputs used in the production process will increase the cost of production which will induce the suppliers to produce less as a result of which there will be a fall in supply. So, this statement is false.