Skip to content

CA Foundation · Business Economics · Theory of Demand and Supply

A farmer in Punjab supplies 400 quintals of wheat at a price of ₹2,000 per quintal. After a rise in the price of fertilisers, he supplies only 300 quintals at the same price of ₹2,000. This change is best described as:

This is a decrease in supply. The wheat price stays at ₹2,000, but costlier fertiliser reduces the quantity offered from 400 to 300 quintals, shifting the supply curve leftward. Contraction of supply would occur only if the price of wheat itself had fallen.

  1. AContraction of supply
  2. BDecrease in supplyCorrect
  3. CExtension of supply
  4. DIncrease in supply

Explanation

The price of wheat is unchanged at ₹2,000, yet the quantity supplied fell from 400 to 300 due to higher input cost. A fall in quantity at the same price means the supply curve has shifted left, which is a decrease in supply. Contraction would require the wheat price itself to fall.

Did you get it right without looking?

One question tells you little. A timed set on Theory of Demand and Supply shows your real accuracy, how long you take and where you lose marks.

Practise Theory of Demand and SupplyFree diagnostic mock

More Theory of Demand and Supply questions