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Question
Explain the following diagram.
Solution
The diagram relates to the concept of change in supply.
- SS curve is the original supply curve.
- When supply increases, the supply curve shifts to the right. It is denoted by S1S1 curve. At OP price, supply increases from PQ to PR.
- Supply curve S2S2 indicates the situation of a decrease in supply. The producer is now willing to supply less quantity, i.e., PK, at the same price.
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