Answer to Question #166274 in Microeconomics for Jaidyn Lennon

Question

1. What effect will each of the following factors have on the supply of Product X? Will supply increase or decrease in each case?

a. Makers of Product X introduce a labour-saving technology in their factory.

b. As the result of a protracted strike, makers of Product X find they have to pay higher wages to their workers.

c. The market price that makers receive for Product X rises.

d. The federal government reduces business taxes.

e. Several makers of Product X go bankrupt, leaving fewer companies to manufacture this product.

Answer 1

a. Makers of Product X introduce a labour-saving technology in their factory.

The production cost will reduce as a result of the introduction of labour-saving technology. This will increase the supply for product X and the supply curve will shift to the right.

b. As the result of a protracted strike, makers of Product X find they have to pay higher wages to their workers.

The supply for product X will decrease.

c. The market price that makers receive for Product X rises.

The quantity supplied will increase. This is represented by an upward movement along the supply curve.

d. The federal government reduces business taxes.

The decrease in taxes reduces the marginal cost and this increases the supply. Thus, the supply for X will increase. This is shown by a rightward shift in the supply curve.

e. Several makers of Product X go bankrupt, leaving fewer companies to manufacture this product.

Market supply for X will decrease, which is shown by a leftward shift in the supply curve.