Supply — Important Questions

Supply increases because cost of production per unit falls

Step 1: Technology of production is one of the key determinants of supply. Step 2: Improved technology makes production more efficient — the same inputs produce more output or the same output is produced at a lower cost. Step 3: When cost of production per unit falls, the profit margin per unit increases. Step 4: Higher profits motivate the firm to produce and supply more of the commodity. Step 5: Options A and D focus on unrelated or indirect effects. Option B is incorrect because technology directly affects cost and therefore supply. The correct answer is C — improved technology → lower cost

Supply will decrease

Step 1: Government policy is one of the important determinants of supply. Step 2: When the government increases sales tax, it adds to the overall cost of production per unit for the firm. Step 3: Higher cost of production per unit reduces the profit margin of the firm. Step 4: With lower profits, the firm is less motivated to produce and supply more of the commodity. Step 5: Therefore, an increase in sales tax leads to a decrease in supply. The opposite is also true — a reduction in tax lowers cost and increases supply.

Price of the commodity and the quantity supplied at each price

Step 1: An individual supply schedule is a tabular presentation of the supply data for one firm or seller. Step 2: It shows the relationship between price and quantity supplied — the two main variables in the law of supply. Step 3: The other factors (technology, input prices, etc.) are assumed to be constant and hence not shown in the table. Step 4: Options A, C, and D are incorrect — income of seller, cost of production, or number of sellers are not the standard columns in an individual supply schedule. Step 5: The correct answer is B — price in one column and quantity supplied in the other,

Direct relationship

Step 1: The Law of Supply clearly states: 'Other factors determining supply remaining constant, the price of a commodity and its quantity supplied are directly related.' Step 2: A direct relationship means both variables move in the same direction — when price goes up, quantity supplied goes up; when price falls, quantity supplied falls. Step 3: An inverse relationship (Option A) is what the Law of Demand describes — it does not apply to supply. Step 4: Option B is incorrect because there is clearly a defined relationship. Step 5: Option D (proportional) is not the correct term used — the law