question_answer

Examine the effect of (a) fall in the own price of good X and (b) rise in tax rate on good X, on the supply curve. Use diagrams.

For blind candidates in lieu of Q. No. 14.

Examine the effect of (a) fall in the own price of good X and (b) rise in tax rate on good X on supply of a good. Use schedule.

Answer:

(a) Fall in the own price of good X ? It leads to contraction in supply. When the quantity supplied of the commodity falls with fall in the price and other things remaining same is called contraction in supply. It is the movement along the supply curve. Contraction is shown as the downward movement along the supply curve. Fort example movement from point 1 to point 2 on the SS supply curve is downward movement along the supply curve.

(b) Rise in tax rate on good X on the supply curve ? It leads to decrease in supply. Supply of the commodity falls due to factors other than price. The leftward shift in the supply curve indicates decrease in the supply. In case of decrease in supply, supply curve shifts to the left from \[{{S}_{1}}{{S}_{1}}\] to \[{{S}_{2}}{{S}_{2}}\].