How would supply shift caused by lower costs of production affect price and quantity?
a) higher price, lower quantity
b) lower price, lower quantity
c) lower price, higher quantity ***
d) higher price, higher quantity
Yes, c.
please explain
Thanks Anonymous
A supply shift caused by lower costs of production would generally result in a lower price and a higher quantity of the product being supplied. The correct answer is c) lower price, higher quantity.
To understand why this is the case, let me explain the relationship between supply and price. In economics, the supply of a product refers to the quantity of that product that producers are willing and able to offer for sale at various prices. The supply curve shows the relationship between the price of a product and the quantity that producers are willing to supply.
When the costs of production decrease, such as through technological advancements or lower input prices, it becomes less expensive for producers to produce the same quantity of goods. This leads to an increase in the quantity that they are willing to supply at any given price level. Therefore, the supply curve shifts to the right.
As the supply curve shifts to the right, the market equilibrium changes. At the original price, there is a greater quantity supplied than before. This increased supply puts downward pressure on the price, resulting in a lower equilibrium price. Simultaneously, the greater quantity supplied means there is a higher quantity available for purchase in the market.
Therefore, a supply shift caused by lower costs of production leads to a lower price and a higher quantity being supplied. This is represented by the correct answer, c) lower price, higher quantity.