Explain any two causes of increase in supply.
Answers
⭐TWO CAUSES OF INCREASE IN SUPPLY ▶
✨Increase in the number of producers.
✨ Decrease in the costs of production.
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What causes an increase in supply
Answered
There is many factor that cause increase in supply:
Increase in supply cause rightward shift in supply curve for ref. see below given diagram :
Seller increases supply of good , whenever the cost of production falls
Image Source:Supply, Demand, and the Market Process
1.Fall in the price inputs :Supply of commodity directly effects by the prices of inputs. There is negative relation between them. falling in the price of inputs leads to the falling in the cost of production which further leads to increase in the production(Supply)
2.Price of Other good: If there is any increase in the price of other good then supply of given good will fall . For example if seller selling two goods Momos and spring roll.
and there is increase in the price of spring roll,It’s means spring roll is more profitable for seller then selling momos and in the effect of this seller will shifts factor of production from momos to spring roll and supply of our given good(Momos) will fall.
3.Taxation and Subsidy: If Govt provide any kind of subsidy to seller in the process of production then it will reduce the cost and supplier will produce more goods.
4.Technology Advancement : if Any upgradation in technology effect production process and increase productivity then supply will automatically increase.
Most of the times technology upgradation decreases cost of production and increase the supply of good.
5.Price of own good : In laymen’s term if price of goods increase then their supply will also increase along with it means there is positive relation between price and good supplied.
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Aayushi Gupta
Aayushi Gupta, B.Com Honors from Narsee Monjee Institute of Management Studies, Mumbai (2019)
Answered May 15, 2018 · Upvoted by Siddalinga Sedamkar, M.A Economics, Central University of Karnataka (2018)
Originally Answered: What is an increase in supply?
Increase or decrease in supply is referred to as change in supply. Change in supply causes the supply curve to shift and occurs due to change in other factors (change in cost of production, change in climate, technical progress etc.) which were assumed to be constant under the law of supply.
(i) Increase in Supply
When there is an increase in supply, demand remaining unchanged, the supply curve shifts towards right from SS to S1S1 (figure below).
When supply increases, the supple curve shifts from SS to S1S1, it creates an excess supply at the old equilibrium price of OP. This leads to competition among sellers, which reduces the price. Decrease in price leads to rise in demand and fall in supply. These changes continue till the new equilibrium is established at point E1. Equilibrium price falls from OP to OP1 and equilibrium quantity rises from OQ to OQ1.
(ii) Decrease in supply
When the supply decreases, demand remaining unchanged, then supply curve shifts to the left from SS to S2S2 (figure below).
When supply decreases to S2S2, it creates an excess demand at the old equilibrium price of OP. This leads to competition among buyers, which raises the price.Increase in price leads to rise in supply and fall in demand. These changes continue till the new equilibrium is established at point E2. Equilibrium price rises from OP to OP2 and equilibrium quantity falls from OQ to OQ2.