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CMA Foundation · Fundamentals of Business Economics and Management · The Fundamentals of Economics

A mango grower in Ratnagiri supplies 400 crates per week when the price is ₹800 per crate. When the price rises to ₹1,000 per crate, he supplies 500 crates, other factors remaining unchanged. Which statement correctly describes this behaviour?

The grower's behaviour illustrates the law of supply. When the price per crate rises from ₹800 to ₹1,000, the quantity supplied rises from 400 to 500 crates, other things unchanged. Price and quantity supplied move in the same direction, which is a movement along the supply curve.

  1. AIt illustrates the law of supply, as quantity supplied rises when price risesCorrect
  2. BIt illustrates a decrease in supply, because the supply curve shifts left
  3. CIt illustrates the law of demand, as quantity rises when price rises
  4. DIt shows that supply is unaffected by price in the short run

Explanation

Price rose from ₹800 to ₹1,000 and quantity supplied rose from 400 to 500 crates with other factors constant. This direct relationship between price and quantity supplied is the law of supply. It is a movement along the curve, not a shift, so the 'decrease in supply' option is wrong.

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