Skip to content

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

A new cheaper technology reduces the cost of making steel utensils in a Pune factory. At every price, the factory is now willing to offer more utensils. In supply analysis, this is best described as:

It is an increase in supply, shown by a rightward shift of the supply curve. Improved technology lowers the cost of production, so producers offer more at every price. Extension of supply, by contrast, is only a movement along the same curve caused by a change in the product's own price.

  1. AAn extension of supply due to a rise in price
  2. BA contraction of supply due to a fall in price
  3. CAn increase in supply, shown by a rightward shift of the supply curveCorrect
  4. DA decrease in supply, shown by a leftward shift of the supply curve

Explanation

Lower production cost from better technology changes a determinant of supply other than price. Hence more is supplied at every price, so the whole supply curve shifts right, called an increase in supply. Extension would be a movement along the curve caused only by price change.

Did you get it right without looking?

One question tells you little. A timed set on The Fundamentals of Economics shows your real accuracy, how long you take and where you lose marks.

Practise The Fundamentals of EconomicsFree diagnostic mock

More The Fundamentals of Economics questions