Question

In: Economics

under what circumstances can the supply curve shift up or down

under what circumstances can the supply curve shift up or down

Solutions

Expert Solution

Sol :

Shift in supply curve occurs when there is a change (i.e increase or decrease) in the supply due to any reason other than change in own prices of the goods.

When there is a change in own prices of the goods there is a upward or downward movement along the supply curve.

When there is increase in prices of the own commodity , supplier will induce to increase the supply as to make higher profits.

So, there will be upward movement when prices increases.

When there is decrease in prices of own commodity, supplier will tend to reduce the supply because of less profits.

So, there will be downward movement when prices decreases.

Shift in supply curve due to any of the following reason :

Rightward Shift (increase in Supply)

  • Decrease in prices of factor of production.
  • Increase or improvement in the technology
  • Decrease in prices of substitute goods.
  • Increase in business expectation. It induce the suppliers to make the investment.
  • Decrease in tax rates or increase in subsidy offered by the government.

Leftward shift (Decrease in supply)

  • Obsolescence of the technology. Due to which cost of production increases.
  • Increase in prices of the factor of production.
  • Increase in prices of the substitute goods.
  • Decrease in business expectation.
  • Increase in taxes or reduction in subsidies will prompt the supplier to reduce the supply because of higher prices.

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