Question

In a certain market, the supply of the product increased. You are required to explain any three
factors using an appropriate diagram direction of the supply, the factors and the effect of the
increase in supply on price and quantity

Answer 1

Increase in supply of product is due to various factors other than the price itself. When supply of product increases it is affected by many factors which are as follows:

1. Prices of input used in production process. When price of inputs or raw material get cheaper then it becomes easy for producer to produce more goods in same price and more quantity will be available in the market. When supply of goods increases then it shift to right ward. Price will be same but quantity will increase.

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Lower price effects on graph as increase in supply

2. New technological updating: When a firm discovers a new technology that allows it to produce at a lower cost, the supply curve will shift to the right as well. A technological improvement that reduces costs of production will shift supply to the right, causing a greater quantity to be produced at any given price. No change in price but quantity supplied will increase.

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New technology has increased the supply in graph.

3. Government policies Government policies can affect the cost of production and the supply curve through taxes, regulations, and subsidies. If the firm experiences that liberal taxation policy will decrease the cost to business and they will be able to increase the supply of product and vice-versa. In the same way government easy regulation help the various firms to bring about more output and increase the supply in the economy it will also shift the supply curve. . No change in price but quantity supplied will increase.

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Liberal government policy help the producers to produce more.