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The theory of the firm under perfect competition — Economics STD 12 Humanities & Commerce — Question

Rajasthan BoardEnglish MediumSTD 12 Humanities & CommerceEconomicsThe theory of the firm under perfect competition4 Marks
Question
What would be an effect on supply curve of the following:
  1. Decrease in tax on product.
  2. Subsidy on production of goods.
  3. Rise in own price of a piece of goods.
✓

Answer

  1. Decrease in tax on product: Due to decrease in tax on product the cost of production of a firm decreases and supply of a given commodity increases and thereby shifts the supply curve rightward as shown in the given figure:

  1. Subsidy on production of goods: If a government gives subsidy to a firm for production of goods, the cost of production of firm decreases for producing this goods, that will increase the supply and thereby shifting in the supply curve to the right as shown in the given figure:

  1. Rise in own price of a good: Due to rise in own price of a good, the quantity supplied for a given commodity also rises because there is positive relationship between own price of a good and quantity supplied of a given commodity. So, due to rise in price of a commodity, there will be upward movement along the supply curve as given below:

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