Answer to Question #252150 in Economics of Enterprise for Vidoushi24

Question

How will the market supply for commodity X change, if 

a) the price of commodity x rises

b) the price of the raw material increases

c) there is a high collective bargaining power by trade unions to increase wages

d) taxes imposed on commodity x increases

e) the subsidy imposed on commodity x increases

Answer 1

a) increase in the price of commodity X will lower its demand. Therefore, the market supply may not match the demand, making it excess.

b) when the price of raw materials increases, the quantity of materials demanded will reduce making the market supply to also decrease.

c) increase of wages may affect the market supply negatively. This is because some of the funds that could be used in purchasing raw materials will be scheduled for wages.

d) increase in taxes makes the price of a commodity to increase. This will reduce the demand for commodity X, making the market supply to increase, and be excess.

e) Subsidies are an added amount to a commodity. This lowers the amount of products produced due to the added costs. Hence, decrease in market supply.