Question

Consider the market supply of cereal.

Complete the following table by indicating whether an event will cause a movement along the supply curve for cereal or a shift of the supply curve for cereal, holding all else constant.

Choose one answer for each question

Event	Movement Along	Shift
A decrease in the price of labor (used in the production of cereal)
A decrease in the price of cereal
A change in technology that makes it less costly to produce cereal

Answer 1

Ans. 1) When the price of labor decreases, input cost of the cereal production decreases, and cereal production increases and given the price of the cereal, the supply of cereal will increase and supply curve will shift rightward ( downward).

2) A decrease in the price of cereal, other factors constant, the quantity supply of cereal will decrease as there is a positive relationship between price and quantity supply of cereal. It leads to the movement along the supply curve.

2) An advance in technology makes the production of cereal less costly, given the price level, the supply of the cereal will increase and the supply curve will shift rightward ( downward)