Question

Can someone explain why the answer to this question is false?

If the same quantities are supplied by firms, but at higher prices, supply has increased

a.) true

b.) false

Answer 1

“If the same quantities are supplied by firms, but at higher prices, supply has increased”, The statement is False

The statement is false because higher price will result in higher quantity supplied by the firms. There is positive relationship between price and Quantity supplied. Higher the price higher will be the quantity supplied in the market. Therefore increase in price causes movement along the supply curve(and not shift the supply curve). Below graph shows increase in price from P1 to P2 causing upward movement along the supply curve

Whereas increase in supply happens due to change in other factors and not price. These factors are –

FACTORS THAT SHIFT SUPPLY CURVE

1. Favourable natural conditions

2. Fall or rise in input cost (cost of production)

3. Improved technology or obsolete

4. Government subsidy or higher taxes and excessive regulation

These factors result in increase in supply (rightward shift in supply curve) or decrease in supply (leftward shift in supply curve). Here increase in supply will shift supply curve from S to S1. This increase in supply took place due to change in other factors and not price. Price will only result in movement along the supply curve and will change Quantity supplied at given price.