ECONOMICS
SUPPLY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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decrease in resource cost.
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more firms entering an industry.
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decrease in subsidies.
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a decrease in consumer incomes.
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Detailed explanation-1: -From the firm’s perspective, taxes or regulations are an additional cost of production that shifts supply to the left, leading the firm to produce a lower quantity at every given price. Government subsidies, however, reduce the cost of production and increase supply at every given price, shifting supply to the right.
Detailed explanation-2: -What causes a leftward shift in the supply curve? The supply curve shifts leftward when there is a decrease in the quantity supplied at every price.
Detailed explanation-3: -Decreased supply means that at every given price, the quantity supplied is lower, so that the supply curve shifts to the left, from S0 to S1. Increased supply means that at every given price, the quantity supplied is higher, so that the supply curve shifts to the right, from S0 to S2.
Detailed explanation-4: -A subsidy will shift the supply curve to the right and therefore lower the equilibrium price in a market. The aim of the subsidy is to encourage production of the good and it has the effect of shifting the supply curve to the right (shifting it vertically downwards by the amount of the subsidy).