Theory question 104
Theory of Supply(a) Define increase in supply.
(b) With the aid of diagrams, explain the effect of an increase in the supply of fish on the price of beef
Show the model answer
Model answer
(a) An increase in supply is when more of a commodity is offered for sale at each price because of a change in factors other than its own price (e.g. better technology, lower costs); the supply curve shifts to the right.
(b) Fish and beef are substitutes. Diagram 1 (fish market): supply shifts right from S0 to S1, so the price of fish falls and more fish is bought. Diagram 2 (beef market): consumers switch from beef to cheaper fish, so demand for beef shifts left from D0 to D1; the price of beef falls (and less beef is bought).
Explanation
Two diagrams: one for fish, one for beef, showing the shifts and new prices.