List four shift factors of supply and explain how an increase in each affects supply, equilibrium price, and equilibrium quantity. You may sketch a graph to go with each example.

List four shift factors of supply and explain how an increase in each affects supply, equilibrium price, and equilibrium quantity.

 

Answer:

Four shift factors of supply are-

1) Input Prices-When the price of an input price rises,producing the good becomes less profitable,thus firms supply less and hence the supply curve shifts to the left. The equilibrium price rises( Po to P’) and the quantity falls( qo to q’)

2)Technology-The technology of turning inputs into output is another determinant of supply. Any advancement of technology will make production cheaper and more profitable. The firm will thus increase supply.The supply curve will shift rightwards. The equilibrium price of the good falls( Po to P’) and the quantity supplied increases( qo to q’).

3) Expectations-The amount of good a firm supplies depends on the price expectations . If the price of the good is expected to rise,the firm will put some of its current production in storage and hence the supply will decrease at present. The supply curve will shift left. The equilibrium price will increase( Po to P’) and the quantity will decrease( qo to q’).

4) Number of Sellers- Market supply is dependent on the number of individual sellers. If number of sellers increase,the total supply will increase thus the Supply curve will shift to the right. The equilibrium price will thus fall( Po to P’) and the quantity will increase( qo to q’).

Asked on February 13, 2018 in economics.
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