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Q3 (CDS-II/2023) Economy › Basic Concepts & National Income › Demand theory basics Answer Verified

Other things remaining constant, the market supply for a good increases if: 1. its price increases. 2. price of its factors of production decreases. 3. price of other goods decreases.

Result
Your answer: —  Â·  Correct: A

Explanation

According to the Law of Supply, other things remaining constant, an increase in a good's price leads to an increase in its quantity supplied. In many examination contexts, this expansion is accepted as an increase in market supply. Thus, Statement 1 is correct.

Changes in external factors can also shift the supply curve:

  • Factors of production: Lower input prices reduce production costs, increasing profitability. This encourages firms to supply more, increasing market supply. Thus, Statement 2 is correct.
  • Other goods: A price decrease in other goods does not universally increase supply. It may increase supply for substitutes in production, but it decreases supply for complements in production (jointly supplied goods like wool and mutton). Without specification, Statement 3 is incorrect.

Therefore, only statements 1 and 2 definitively increase market supply.

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