Chapter 7 Supply Solutions
Question - 1 : - Consider a market with two firms. The following table shows the supply schedules of two firms: the SS1 column gives supply schedule of firm 1 and SS2 column gives supply schedule of firm 2. Compute the market supply schedule.
Answer - 1 : - 
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Question - 2 : - Consider a market with two firms. In the following table, columns labelled as SS1 and SS2 give the supply schedules of firm 1 and firm 2 respectively. Compute the market supply schedule.
Answer - 2 : -
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Question - 3 : - There are three identical firms in a market. The following table shows the supply schedule of firm 1. Compute the market supply schedule.
Answer - 3 : -
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Question - 4 : - How does technological progress affect the supply curve of a firm?
Answer - 4 : - When there is technological progress in the firm, then cost of production will decrease, which leads to increase in the profit margin of the firm and thereby shifts the supply curve rightward as showm.
Question - 5 : - How does the imposition of a unit tax affect the supply curve of a firm?
Answer - 5 : -
(i) A unit tax is a tax that the government imposes per unit sale of output.
(ii) For example, suppose that the unit tax imposed by the government is Rs 3.
Then, if the firm produces and sells 20 units of the goods, the total tax that the firm must pay to the government is 20 x 3 = 60.
(iii) So, if the unit tax increases, the firm’s cost of production increases which will shift the supply curve leftward.
Question - 6 : - How does an increase in price of an input affect the supply curve of a firm?
Answer - 6 : -
(i) This also influences the supply since price of inputs (rent, wages, interest, profit) constitutes the cost of production of a commodity.
(ii) An increase in the price of an input may lead to rise in cost of production, which will thereby decrease the production of a commodity shifting the supply curve to the left as shown.
Question - 7 : - How does an increase in the number of firms in a market affect the market supply curve?
Answer - 7 : -
(i) When the number of firms in the industry increases, market supply also increases due to large number of producers producing that commodity.
(ii) So, due to increase in market supply, the supply curve shifts rightward as shown.
Question - 8 : - What does the price elasticity of supply mean? How do we measure it?
Answer - 8 : -
(i) The degree of responsiveness of quantity supplied to the changes in price of the commodity is known as price elasticity of supply.
(ii) Percentage Method: To measure price elasticity of supply, we use percentage method. According to this method, elasticity is measured as the ratio of percentage change in the quantity supplied to percentage change in the price.Price elasticity of supply (ES) Percentage change in quantity supplied Percentage change in price
Question - 9 : - What is the supply curve of a firm in the short run?
Answer - 9 : -
(i) In the short period, supply is relatively less elastic as firm can change the supply by changing the variable factors only, as fixed factors remain fixed during short period.
(ii) The supply curve during short period is inelastic, ie., percentage change in quantity supplied is less than percentage change in price as shown below:
Question - 10 : - What is the supply curve of a firm in the Long run?
Answer - 10 : -
(i) In the long period, supply is more elastic as all the factors can be changed and supply can be easily adjusted as per changes in price.
(ii) The supply curve during long period is elastic, i.e., percentage change in quantity supplied is greater than per¬centage change in price as shown below: