1.

Explain any three causes of "Increase" in supply of a commodity.

Answer»

Three causes of "Increase" in supply:

(i) Fall in the price of other goods: If there is no change in the price of the commodity concerned, and the prices of other competing commodity concerned will fall because those who are using this commodity will switch over to the use of other commodities, there by increasing its supply.

(ii) Fall in the prices of inputs : Fall in the prices of factor of production leads to a fall in the cost of production which positively affects the supply of a commodity, e.g., when the prices of inputs fall, cost of production also falls, with the result the supply of a commodity will be more at a given price.

(iii) Reduction in taxes etc: Government levies tax on every unit of commodity sold or bought. Due to levy of tax, cost of production increases and by reduction in the value of tax, cost of production declines. Therefore, if taxes are reduced cost of production falls and this leads to an increase in the supply of the commodity at the same price.



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