Question

A new technology that allows a company to reduce its production costs will cause

a. a shift to the right of the supply curve.

b. an upward movement along the supply curve.

C. a downward movement along the supply curve.

  d. a shift to the left of the supply curve.

Answer 1

Answer- Option a. A shift to the right of the supply curve.

When quantity supplied of a commodity increases or decreases because of a change in other factors other than the own price of the commodity, it is called change in supply. Change in supply indicates that at the same price, more or less quantity is supplied. It causes a shift of supply curve to left or right.

Here in the above scenario, a new technology will reduce costs of production. At a particular price with reduced cost, profit margin of producer will increase and hence more quantity will be supplied. Here the supply curve will shift to right because price of commodity has not changed and more quantity is now supplied due to new technology. This rightward shift implies that at the same existing price, more quantity is supplied.

Option b is incorrect because when quantity supplied increases or decreases because of a change in price of commodity, other factors remaining constant, then it is known as expansion or contraction of supply. It is indicated by a movement along the supply curve. As the price has not changed in the above scenario, there is no upward movement along the supply curve.

Option c is incorrect because movement along the supply curve occurs when price of commodity increases or decreases. As price has not changed, but due to new technology supply has increased at the same price, there is no downward movement along supply curve.

Option d is incorrect because supply curve shifts to left when less quantity will be supplied at the same price. A reduction in costs of production will lead to more profit and so quantity supplied will increase. This will cause a rightward shift of supply curve indicating more quantity is supplied at the same price.