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CA Foundation · Business Economics · Theory of Demand and Supply

A steel manufacturer in Jamshedpur adopts a new technology that lowers its cost of production per tonne. Other things remaining the same, what is the likely effect on the supply curve of steel?

The supply curve shifts to the right, because better technology lowers unit cost and makes producers willing to offer more steel at every price. This is an increase in supply, not a movement along the existing curve, which would need a change in the steel price.

  1. ASupply curve shifts to the right (increase in supply)Correct
  2. BSupply curve shifts to the left (decrease in supply)
  3. CMovement upward along the same supply curve
  4. DMovement downward along the same supply curve

Explanation

Improved technology reduces the unit cost, so producers are willing to supply more at each price. This is an increase in supply, shown by a rightward shift. Movements along the curve occur only when the product's own price changes.

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