Increase/Decrease in Supply (4th law of demand and supply)

Question 1

What causes an Increase in supply (6)

Answer 1

A fall in the price of FOPs, improvements in technology, fall in taxes, rise in subsidies, rise in no. of sellers and a fall in the price of other goods

Question 2

An increase in supply would lead to

Answer 2

An outward shift of the supply curve from S0 to S1 causes an increase in equilibrium qty from Q0 to Q1 and a decrease in equilibrium price from P1 to P0. A new eq. price is at E1. There is an extension in Demand curve from E to E1

Question 3

What causes a decrease in supply (5)

Answer 3

A rise in the price of FOPS, rise in taxes, fall in subsidies, fall in the number of sellers and a rise in the price of other goods.

Question 4

A decrease in supply would lead to

Answer 4

An inward shift of the supply curve from S0 to S1, resulting in a decrease in eq. quantity from Qe to Q1 and an increase in Eq price from Pe to P1, a new Eq point is established at E. This is a contraction in the demand curve from E1 to E2