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The theory of the firm under perfect competition — Economics STD 11 Commerce — Question

CBSE BoardEnglish MediumSTD 11 CommerceEconomicsThe theory of the firm under perfect competition4 Marks
Question
Explain any two causes of a leftward shift of supply curve.
OR
What is decrease in supply? Explain any two factors that can cause it.
✓

Answer

The following are the causes for a leftward shift of supply curve (or decrease in supply) of a commodity:
  1. Use of less productive technology: If the firm is using less productive technology, the unit cost of production will rise. With the higher cost of production, the firm produces less and less would be supplied than before at the given price, i.e., the supply would decrease implying that the supply curve would shift to the left.
  2. A rise in the price of inputs: When the price of inputs (i.e., wages of labour, price of raw materials and fuel) goes up, the unit cost of production will rise. With the higher cost of production, less would be supplied than before at the given price, i.e., the supply would decrease implying that the supply curve would shift to the left.
  3. A rise in excise duty: When excise duty is increased by the government, the unit cost of production will rise. With the higher cost of production, less would tibe supplied than before at the given price, i.e., supply would decrease implying that the supply curve would shift to the left.
  4. A rise in the price of related goods: Suppose wheat and sunflower are the two goods which a farmer produce. If the price of sunflower rises, then it would be profitable for the firm to produce more sunflower. The firm would withdraw some land and other resources from the production of wheat and devote them to the production of sunflower whose price has increased. This would decrease supply of wheat implying that the supply curve of wheat would shift to the left.

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