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CMA Foundation · Fundamentals of Business Economics and Management · Theory of Demand and Supply

A cloth manufacturer in Surat supplies 400 metres of fabric when the price is ₹100 per metre and 500 metres when the price rises to ₹120 per metre, other factors unchanged. This behaviour illustrates which of the following?

The case shows the law of supply working as an upward movement along the same supply curve. Quantity supplied rises from 400 to 500 metres because the own price rises from ₹100 to ₹120, with other determinants constant. No non-price factor changed, so the curve does not shift.

  1. ALaw of supply, shown by an upward movement along the same supply curveCorrect
  2. BLaw of supply, shown by a rightward shift of the supply curve
  3. CLaw of demand, shown by a downward movement along the demand curve
  4. DA decrease in supply caused by a fall in input costs

Explanation

Quantity supplied rises from 400 to 500 metres only because the product's own price rises, with other factors constant. That is an extension of supply, a movement along the same upward-sloping supply curve. A shift would require a change in a non-price factor such as input costs or technology.

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