Which of the following statement (s) is/are correct?

Statement 1: Extension of Supply refers to the movement along the existing supply curve

Statement 2: Contraction of Supply refers to a movement along the existing supply curve.

Both statements are correct.

The correct answer is Option 3: Both statements are correct.

Statement 1: Extension of Supply refers to the movement along the existing supply curve. This is accurate. An extension of supply occurs when the price of a good increases, and the quantity supplied increases as a result, moving along the existing supply curve.

Statement 2: Contraction of Supply refers to a movement along the existing supply curve. This is also accurate. A contraction of supply happens when the price of a good decreases, and the quantity supplied decreases, again, moving along the existing supply curve.

When quantity supplied of a commodity changes due to change in its own price, assuming, other things being equal, it is known as change in quantity supplied. It is represented by movement along the same supply curve. It is of two types:

a. Extension/Expansion of Supply: This refers to the movement along the existing supply curve. It occurs when the price of a commodity increases, and as a result, the quantity supplied also increases, with all other factors remaining constant. For example, supply of tea increases due to rise in its prices, other things being equal.

b. Contraction of Supply:This refers to a movement along the existing supply curve. It occurs when the price of a commodity decreases, and as a result, the quantity supplied also decreases, while all other factors remain constant. For example, supply of tea decreases due to fall in its prices, other things being equal.