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Question
Explain any two causes of decrease in supply of a commodity.
Solution
- Increase in factor price: Increase in price of factors of production will increase the cost of production due to which profit decreases. As a result, supply of this particular commodity decreases.
- Increase in tax rate: Increase in tax rate by government will also increase the cost of production due to which profit decreases.
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RELATED QUESTIONS
Match the following and select the correct option.
| Column I | Column II |
| (i) Expansion of supply | (A) Prices are expected to fall in future |
| (ii) Decrease in supply | (B) Fall in prices |
| (iii) Contraction of supply | (C) Prices are expected to rise in future |
| (iv) Increase in supply | (D) Rise in prices |
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