What cause movements along the supply curve?

 

 Learning Contents:                                                            

·            Extension of supply

·            Contraction of supply

Introduction

As the Law of supply states, other things remaining constant, when the price of a commodity rises, sellers are willing to sell more of it; if price of a commodity falls, they sell less of it. Therefore, price may either go up or down and this causes the seller to sell either more or less of a commodity respectively.

Movements along the supply curve means moving ‘up or down’ the supply curve. When price becomes the only reason for a change in the supply for a commodity, it is called as the movements along the supply curve. Such movements along the supply curve are known as extension of supply (upward movement) and contraction of supply (downward movement).  A movement along the supply curve is also known as change in the quantity supplied for a commodity. The change in quantity supplied is classified into two types:

1. Extension of supply

(Upward movement along the supply curve)

Extension of supply refers to a situation when quantity supplied for a commodity increases due to an increase in the price of a commodity. It is also known as increase in quantity supplied. For e.g. when the price of an ice cream is ₹ 10 per unit, seller wishes to sell 20 units of it. When its price falls to ₹ 5 per unit, seller reduces his quantity supplies to 10 units of an ice cream.

                    Supply Schedule: Extension of Supply

Price of ice cream (Amount in ₹)	Quantity supply (Units)
5	10
10	20

 

Extension of supply is shown by the movement upward and to the right from point A to B along the supply curve in figure 1.

2.   Contraction of Supply

(Downward movement along the supply curve)

Contraction of supply refers to a situation when quantity supplied for a commodity decreases due to fall in price of the commodity. It is also known as decrease in quantity supplied. For e.g. when the price of an ice cream is ₹ 10 per unit, seller sells 20 units of it. When its price falls  to ₹ 5 per unit, he is willing to sell10 units of ice cream.

                    Supply Schedule: Contraction of supply

Price of Ice cream (Amount in ₹)	Quantity Supply      (Units)
10	20
5	10

Fig 2: Extension of Supply

Contraction of supply is shown by the movement downward and to the left from B to A along the supply curve in figure 2.

Test yourself:

Multiple choice questions based on the above topic

(Choose the correct answer)

1. Movement along the supply curve occurs due to:

a. increase in own price of the commodity

b. decrease in own price of the commodity

c. both a. and b.

d. none of these.

2. A decrease in quantity supplied is, graphically, represented by:

a. A leftward shift in the supply curve.

b. A rightward shift in the supply curve.

c. A movement up and to the right along the supply curve.

d. A movement down and to the left along the supply curve.

3. Increase in quantity supplied due to rise in price is called:

a. Increase in supply

b. Decrease in supply

c. Extension of supply

d. None of these

3. A change in the price of a good

a. shifts the good's supply curve but does not cause a movement along it.

b. does not shift the good's supply curve but does cause a movement along it.

c. shifts the good's supply curve and also causes a movement along it.

d. neither shifts the good's supply curve nor causes a movement along it.

4. Extension supply refers to a situation when the producers are willing to supply a

 a. Larger quantity of the commodity at an increased price

 b. Larger quantity of the commodity due to increased taxation on that commodity

c. Larger quantity of the commodity at the same price

d. Larger quantity of the commodity at the decreased price

5. A decrease in quantity supplied is, graphically, represented by:

a. A leftward shift in supply curve.

b. A rightward shift in the supply curve.

c. A movement down and to the left along the supply curve.

d. A movement up and to the right along the supply curve.

6. An increase in the price of cooking gas will cause the supply for cooking gas to:

a. rise

b. fall

c. remain the same

d. none of these

7. An increase in quantity supplied is, graphically, represented by:

a. A leftward shift in supply curve.

b. A rightward shift in the supply curve.

c. A movement down and to the left along the supply curve.

d. A movement up and to the right along the supply curve.

 

8. A change in the supply of a commodity along with the same supply curve may occur due to:

a. Change in price of the commodity

b. Change in price of related goods

c. Change in future expectations about the price of the good

d. Change in the cost of inputs

Answer Key

 

1.c	2.d	3.b	4.a
5.c	6. a	7.d	8.a

 

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