Question

Explain three reasons for the rightward shift of the supply curve.

Answer 1

Three reasons for the rightward shift of the supply curve:

1. Price of the product: When there is an increase in the price of the product and if it is more than the marginal cost of production, it enables the firm to earn an excess profit by selling at a higher price. So, there is an increase in the supply of the product, which causes a rightward shift of the supply curve.
2. Technological condition: Technological progress creates a positive approach in the supply of a particular product. It decreases the cost per unit and increases the productivity of given factor inputs of production. This leads to making the production of a particular good more profitable. So, there is an increase in the supply of the product, which causes a rightward shift of the supply curve.
3. Law of diminishing marginal utility: According to this law, as more units of the variable factor are employed, the addition made to total production falls, i.e., the cost of production increases. Thus, more quantity is supplied only at a higher price in order to cover the rise in the cost of production.

Answer 2

1. Fall in the price of factors of production: When the price of factors of production (wages, raw material costs, etc.) falls, the producer/seller's profit margin rises, encouraging him to increase supply.
2. Increase in the number of firms in the market: As more firms enter the market, total supply rises.
3. When the firm expects a fall in the price of the commodity: If a firm expects prices to decline in the near future, it will raise its current supply at higher prices in order to maximize profits.