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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: C
Explanation

Market supply increases (shifts rightward) when factors other than the good's own price change favorably for production. Statement 1 is incorrect because an increase in the good's own price leads to an increase in 'quantity supplied' (movement along the curve) rather than an increase in 'supply' (shift of the curve) [1]. Statement 2 is correct; a decrease in the price of factors of production reduces marginal costs, allowing firms to supply more at every price level [2]. Statement 3 is correct based on the concept of opportunity cost in production. If the price of other goods (substitutes in production) decreases, the relative profitability of the current good increases, incentivizing producers to shift resources toward it, thereby increasing its supply. Therefore, only statements 2 and 3 represent factors that increase the market supply of a good.

Sources

  1. [1] Microeconomics (NCERT class XII 2025 ed.) > Chapter 5: Market Equilibrium > Supply Shift > p. 79
  2. [2] Microeconomics (NCERT class XII 2025 ed.) > Chapter 4: The Theory of the Firm under Perfect Competition > 4.5.2 Input Prices > p. 62
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