Exhibit 4.3

-Refer to Exhibit 4.3, which shows the supply curves of baby formula. Which of the following changes is likely to result from an increase in the number of firms producing baby formula?

Question

Exhibit 4.3
 
-Refer to Exhibit 4.3, which shows the supply curves of baby formula. Which of the following changes is likely to result from an increase in the number of firms producing baby formula?

Quizplus · Accepted Answer

An increase in the number of firms producing baby formula would lead to a rightward shift of the supply curve from S₁ to S₂. This is because more firms entering the market would increase the overall supply of baby formula, causing the supply curve to shift to the right. The movement from point a to point b on curve S₁ would only occur if there was a change in the quantity supplied due to a change in the price of the good, while a leftward shift from S₂ to S₁ would imply a decrease in the overall supply of baby formula, which is unlikely when the number of firms producing is increasing. Movement from point c to point d would require an increase in the price of baby formula, triggering a movement along S₂, which is not necessarily going to occur by just increasing the number of firms producing. Movement from point b to point a would require a decrease in the quantity supplied, which is also not the likely outcome of an increase in the number of firms.

Exhibit 4.3 -Refer to Exhibit 4.3, Which Shows the Supply Curves of the Supply