Question

5. What happens to price and quantity when the Supply curve rises? Why? 6. What forces or events may cause a “drop” in Supply? 7. What IS a drop in Supply, exactly? 8. What happens to price and quantity when the Supply curve drops? Why? 9. Let’s say that we are a firm doing business in the U.S. If a government entity, federal, state, or local, were to impose a new regulation on our business---perhaps one that imposed stricter pollution control standards---that caused a rise in our cost of doing business, what would happen to our Supply curve? According to economic theory, what would happen to price and quantity as a result? Why?

Answer 1

5) When the supply curve rises it shift rightwards .Due to rise in supply equilibrium price and equilibrium quantity fluctuate and due to rise in supply , equilibrium price will fall and equilibrium output will rise.

6) Drop in supply can take place due to following factors.

• Increase in production cost- When the cost of production increases , profits of the forms decreases therefore, they produce less and supply curve shift backwards.
• Change in technology - When technology become obsolete firm incur losses and supply decreases.
• Decrease in price- When the price of product falls firm earn less profit and produce less and supply falls.

8) When the supply curve falls ,it shift backwards .Due to decrease in supply ,equilibrium price and equilibrium quantity fluctuate and due to fall in supply , equilibrium price will rise and equilibrium output will fall .

It can be explained with diagram

9) If government impose new regulations under which  imposed stricter pollution control standards---that caused a rise in our cost of doing business, then Supply curve will shift backwards . The reason is that firm will incur losses by producing the goods . Few firms will leave the market.Therefore equilibrium price will rise . The reason is that demand remain the same but production fall shortage takes place. Due to that prices will rise.

Equilibrium output will fall due to less prodduction.