Answer to Question #242072 in Microeconomics for Tasnim

Question

What happens to the supply curve if each of the following occurs? Explain with
relevant graph.
a. There is an increase in the number of sellers.
b. 10% subsidy will be given on the production of a particular type of good.
c. The price of substitute good rises.

Answer 1

• a. There is an increase in the number of sellers.

An increase in the number of sellers will cause an increase in the supply of a given good. Normally, a rise in the supply of a product is exhibited by the rightward shift in the supply curve. 

• b. 10% subsidy will be given on the production of a particular type of good.

10% subsidy will encourage the producers to generate more. Hence, the supply of a good will shift to the right as shown in the graph below.

• c. The price of substitute good rises.

An increase in the price of a substitute good will make the supply curve of a given good to shift to the left. For example, corn and soybeans are substitutes in production. An increase in the price of corn will make the farmers divert more resources towards the production of corn. Hence, the supply of soybeans will reduce, causing a leftward change in the supply curve.