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Question

Difficulty: EasyDeterminants and Changes in Supply

Which of the following factors will cause an outward (rightward) shift in the supply curve of a manufactured commodity?

  1. An improvement in technology that reduces production costsAnswer
  2. B
    An increase in the market price of the commodity itself
  3. C
    The imposition of an indirect tax on the commodity
  4. D
    An increase in the prices of essential raw materials

Answer

An improvement in technology that reduces production costs
Technological advancement reduces unit production costs, making production more profitable and causing producers to supply more output at all price levels. This shifts the supply curve outward to the right.

Step-by-Step Solution

1
Distinguish between a shift in the supply curve and a movement along the supply curve.
A change in the commodity's own price causes movement along the curve. Non-price determinants cause the entire curve to shift.
Only non-price factors (like technology, input costs, taxes, and subsidies) shift the supply curve.
2
Determine the direction of the supply curve shift for each non-price factor.
Favorable factors (technological progress, government subsidies, lower input costs) shift supply rightward. Unfavorable factors (higher taxes, higher input costs) shift supply leftward.
An improvement in technology reduces cost per unit, encouraging producers to offer a larger quantity for sale at every price level.

Key Concept

Determinants of Supply and Curve Shifts
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Topics

Determinants and Changes in Supply

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