Question

Distinguish between extension of supply and increase in supply​

Answer 1

Increase in supply and extension in supply:

Extension in supply refers to the increase in quantity supplied due to the increase in prices whereas contraction in supply refers to the decrease in quantity supplied due to the decrease in prices.

Extension in supply:

• Extension in supply refers to the increase in quantity supplied due to the increase in prices whereas contraction in supply refers to the decrease in quantity supplied due to the decrease in prices.
• A movement along a supply curve only occurs when the price changes, ceteris paribus. The diagram below shows that a price rise will cause an extension up the supply curve, from point A to point B, whilst a price fall will cause a contraction back down the supply curve, from point A to point C.

Increase in supply:

• An increase in supply means that at each of the prices there is now an increase in the quantity supplied—meaning that the curve shifts to the right
• An increase in supply is illustrated by a shift of the supply curve to the right. An increase in supply can be caused by: an increase in the number of producers. a decrease in the costs of production (such as higher prices for oil, labor, or other factors of production).

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Answer 2

Extension of supply refers to an increase in quantity supplied due to the increase in price of a particular product or service.

Increase in supply mainly describes an increase in overall supply of a product or service that can be attributed to factors other than the price of that particular product or service.

Extension of supply:-

• Extension of a product is an increase in quantity supplied of a product primarily due to increase in the price of that particular product.
• It is represented by an upward movement along the supply curve which shows the positive relationship between the price and quantity supplied for any product/service.
• Contraction of supply is basically decrease in quantity supplied of a product when the price of that product decreases.

Increase in supply:-

• An increase in overall supply of a product or service due to non price factors and considering the price of that product constant.
• These non-price related factors usually constitute decrease in price of the factors of production or production inputs,reduction in overall production cost,favorable business tax policies by government for the firms,various production subsidies and so forth.
• Denoted by a rightward shift of the supply curve implying an increase in overall supply of a product or service at a constant price level.
• Conversely,a decrease in supply is indicated by a leftward shift of the supply of a product or service at a constant price level.

Note:In the case of increase in supply,the price remains constant and non-price related factors are variables and in contrast price is the main factor responsible for expansion of supply considering all other factors constant.