Other things remaining constant, the market supply for a good increases if:

1. its price increases.

2. price of its factors of production decreases.

3. price of other goods decreases.

Select the correct answer using the code given below:

The correct answer is 1 and 2 only.

Key Points

• If the price of the good increases, producers are likely to supply more of it to take advantage of the higher prices. So, the market supply for the good will increase.
• If the price of its factors of production decreases, the cost of producing the good will decrease. This would make it more profitable for producers to supply more of the good, hence increasing the market supply.
• The price of other goods decreasing may or may not affect the market supply of the good.
  • For example, if the price of a substitute good decreases, producers might shift their resources to produce more of that substitute good, potentially decreasing the supply of the original good.
  • So, this statement is not universally true.