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CA Foundation · Business Economics · Theory of Demand and Supply

Which of the following is most likely to cause a rightward shift of the supply curve of cotton shirts produced by a Tirupur garment manufacturer, other things remaining the same?

A fall in the price of cotton yarn shifts the supply curve of shirts to the right. Lower input cost reduces the cost of production, so more shirts are offered at every price. A change in the shirt's own price only moves along the curve.

  1. AA rise in the price of cotton shirts
  2. BA fall in the price of cotton yarn used as a raw materialCorrect
  3. CA rise in consumers' incomes
  4. DAn increase in the wage rate of garment workers

Explanation

A fall in the price of an input lowers the cost of production, so producers are willing to supply more at each price and the supply curve shifts right. A rise in the price of the shirts themselves only causes a movement along the curve (extension of supply). Higher wages raise costs and shift supply left, while consumer income affects demand, not supply.

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