Expansion of supply occurs due to:
Options
AIncrease in price
BDecrease in price
CDecrease in cost of production
DImprovement in technology
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Theory of Demand and SupplyMTP - June 2023Question 35 of 20
All Questions Correct Answer
✅ Option a — Increase in price
All Options:
- AIncrease in price
- BDecrease in price
- CDecrease in cost of production
- DImprovement in technology
Detailed Solution & Explanation
To understand why expansion of supply occurs, we need to consider the factors that influence supply.
• The law of supply states that as the price of a product increases, the quantity supplied also increases, ceteris paribus.
• This is because higher prices make production more profitable for suppliers, encouraging them to produce more.
• As a result, an increase in price leads to an expansion of supply, as firms are willing to supply more at the higher price.
The correct answer is right because it aligns with the law of supply, which is a fundamental principle in economics.
• On the other hand, a decrease in price would lead to a contraction of supply, not an expansion, making this option incorrect.
• Similarly, while a decrease in cost of production or an improvement in technology can also increase supply, they are not the direct result of an increase in price, which is the specific factor being considered here.
About This Chapter: Theory of Demand and Supply
Paper
Paper 4: Business Economics
Weightage
10%
Key Topics
Law of Demand/Supply, Elasticity, Consumer Behavior
One of the most important chapters in the entire CA Foundation Economics paper. It covers the Law of Demand, Law of Supply, Elasticity of Demand (Price, Income, and Cross), Consumer Behavior (Cardinal and Ordinal approaches), and the concept of Consumer Surplus. Understanding demand and supply curves and their shifts is essential for grasping market dynamics.
View Official ICAI SyllabusExam Strategy Tip
Master the difference between 'Change in Demand' (shift) and 'Change in Quantity Demanded' (movement). This distinction alone can secure 3-5 marks. Also practice Elasticity numerical calculations.
Key Concepts to Understand
Related Comparison Tables
More Questions from Theory of Demand and Supply
Identify the factor which generally keeps the price-elasticity of demand for a good low:
Supply is a concept:
Demand for a commodity refers to:
Contraction of demand is the result of:
All but one of the following are assumed to remain the same while drawing the demand curve for a commodity. Which one is it?
Which of the following pairs of goods is an example of substitutes?
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