Which of the following statement (s) is/are correct?
Statement 1: A market supply curve is derived for a fixed number of firms in the market. As the number of firms changes, the market supply curve shifts as well.
Statement 2: if the number of firms in the market increases (decreases), the market supply curve shifts to the left (right).
Answer & explanation
Correct answer: option 1
The correct answer is option 1: Only Statement 1 is correct.
Statement 1: Correct
- The market supply curve is derived by summing up the individual supply curves of all firms for a given number of firms in the market.
- If the number of firms changes, the market supply curve shifts:
- If new firms enter, supply increases → rightward shift.
- If firms exit, supply decreases → leftward shift.
Statement 2: Incorrect
- The direction of the shift is wrong:
- An increase in the number of firms increases total market supply, shifting the curve to the right (not left).
- A decrease in the number of firms reduces total market supply, shifting the curve to the left (not right).
- The statement incorrectly reverses the direction of the shift.