Explain any two causes of "Decrease" in supply of a good.

1.	Explain any two causes of "Decrease" in supply of a good.
Answer» Decrease in supply means decrease in supply due to factors other than price change. The causes are: (i) The supply of a commodity will decrease when prices of inputs inverse. This leads to an increase in cost of product. In this case, producer will be able to produce less number of goods with a given amount of capital. (ii) The supply of a commodity will decrease if there is an increase in the price of other goods. Because in such a case, firms will start producing more of the other good whose price has increased. (iii) Taxation policy of the government also affect the supply of a good. Increase in excise daily on a particular good, will lead to an increase in its marginal cost thereby leading to a decrease in its supply.

Answer»

Decrease in supply means decrease in supply due to factors other than price change. The causes are:

(i) The supply of a commodity will decrease when prices of inputs inverse. This leads to an increase in cost of product. In this case, producer will be able to produce less number of goods with a given amount of capital.

(ii) The supply of a commodity will decrease if there is an increase in the price of other goods. Because in such a case, firms will start producing more of the other good whose price has increased.

(iii) Taxation policy of the government also affect the supply of a good. Increase in excise daily on a particular good, will lead to an increase in its marginal cost thereby leading to a decrease in its supply.

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