Question

Explain three determinants of a leftward shift of the supply curve.

Point out various factors which lead to a decrease in supply.

Answer 1

1. Increase in government tax: As tax rates rise, so does the expense of production. As supply declines, the supply curve shifts to the left.
2. Rise in prices of inputs: As the price of elements of production rises, so does the cost of production. Thus, manufacturers are willing to supply less at the current price. Consequently, the supply curve will move to the left.
3. Rise in prices of other goods: As prices of other goods rise, the firm is encouraged to raise production of other goods in order to increase profits. As a result, the production and supply of the specified commodities would decrease.