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State the Law of Supply. Discuss how a change of technology affects the supply of a commodity. |
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Answer» The Law of supply states a positive relationship between the price of the commodity and the quantity supplied. It is indicated by a positively sloping curve. It rests on the celeries paribus’ (i.e., other things affecting the supply function remain unchanged) assumption. So the normal supply curves are called the ceteris paribus’ supply curve. This Law assumes that: • Prices of the factors of production remain unchanged. • Production technology remains the same. • The policies of the government (sav the tax and subsidy policy) remain unchanged. • The goals of the firm remain unattended. • The number of firms in the industry remains the same. Improvement in techniques of production results in an increase in supply (rightward shift of supply curve) and use of inferior techniques of production results in a decrease in supply (leftward shift of supply curve. |
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