Question

Identify and explain any two factors causing an increase in supply. Support your answer with the use of a diagram. Label your diagram with appropriate variables on X axis and Y axis. Identify and explain the factor affecting quantity supplied.

Answer 1

An increase in the supply can be caused by:

1. A fall in the cost of production: When the cost of production decreases, the firms would be able to produce more at the given cost. Hence, it would lead to an increase in the supply.

2. An increase in the number of producers in the market: When the number of producers increases in the market, the supply of the product in the market will increase.

When there is an increase in the supply, the equilibrium price may fall and the quantity supplied will increase.

Price O Q Q , Quantity

FACTORS AFFECTING THE QUANTITY SUPPLIED ARE:

1. Price of the product: The price of the price and quantity supplies share a direct relationship. If the price of the product increases, the quantity supplied in the market would increase.

2. Cost of the product: If the cost of the product falls, the supplier may be lured to produce more and increase its quantity supplied to reap higher profits.

3. Technological changes: With favorable changes in technology, the quantity supplied will increase and vice versa.

4. Factor prices and it's availability: The price of the factors of production and their availability have a direct bearing on the quantity produced and supplied in the market.

5. Government Policies and Regulations: Government policies and regulations greatly affect the supply decisions of the firm. If the government is in favor to promote the consumption of a product, it will lay down positive policies and will encourage firms to supply more of the good and vice versa.