Consider the following statements about a shift in the market supply curve, with the demand curve unchanged:
(A) An increase in the number of firms shifts the market supply curve to the right.
(B) After a rightward shift of the supply curve, there is excess supply at the old equilibrium price.
(C) A rise in the price of an input shifts the market supply curve to the right.
(D) After a leftward shift of the supply curve, the equilibrium price rises and the equilibrium quantity falls.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (A), (B) and (D) only
The supply curve moves only with changes on the firms’ side, such as their number or their costs. A supply shift moves price and quantity in opposite directions.
(A) An increase in the number of firms shifts the market supply curve to the right. — Correct. More firms supply more at each price, so the supply curve moves right.
(B) After a rightward shift of the supply curve, there is excess supply at the old equilibrium price. — Correct. At the old price firms now offer more than buyers want, so there is excess supply and firms cut the price.
(C) A rise in the price of an input shifts the market supply curve to the right. — Incorrect. A dearer input raises the cost of production, so firms supply less. The supply curve shifts left.
(D) After a leftward shift of the supply curve, the equilibrium price rises and the equilibrium quantity falls. — Correct. Less is offered at each price, buyers bid the price up, and less is sold at a higher price.
NCERT (2026-27): “Supply Shift … Let us discuss the impact of an increase in the number of firms. Since at each price now more firms will supply the commodity, the supply curve shifts to the right but it does not have any effect on the demand curve.” “Supply Shift … Similarly, when supply curve shifts rightward, as shown in panel (b), at p0 there will be supply excess of goods equal to q0q′0. In response to this excess supply, some firms will reduce their price and the new equilibrium will be attained at F where the supply curve SS1 intersects the demand curve DD0 such that the new market price is p1 at which q1 quantity is bought and sold. Notice the directions of change in price and quantity are opposite whenever there is a shift in supply curve.” “Supply Shift … Let us consider a situation where all other things remaining constant, there is an increase in the price of an input used in the production of a commodity. This will increase the marginal cost of production of the firms using this input. Therefore, at each price, the market supply will be less than before. Hence, the supply curve shifts leftward. In the Figure 5.3(a), this is shown by a shift in the supply curve from SS0 to SS2. But this increase in input price has no impact on the demand of the consumers since it does not depend on the input prices directly. Therefore, the demand curve remains unchanged. In Figure 5.3(a), this is shown by the demand curve remaining unchanged at DD0. As a result, compared to the old equilibrium, now the market price rises and quantity produced decreases.” |