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How can a decrease in production cost affect the supply in a market?

A decrease in production cost can increase the supply in a market as it becomes more profitable for producers to produce more.

When the cost of production decreases, it means that producers can produce the same quantity of goods or services at a lower cost. This can be due to a variety of factors such as technological advancements, lower raw material costs, or improved efficiency in the production process. As a result, the profitability of producing each unit increases, which incentivises producers to increase their output. This leads to an increase in supply in the market.

The relationship between production cost and supply can be explained using the law of supply, which states that, all else being equal, an increase in price results in an increase in quantity supplied. In this case, while the selling price remains the same, the cost of production decreases. This effectively increases the 'price' or profitability for the producer, leading to an increase in quantity supplied.

This increase in supply can have several effects on the market. Firstly, it can lead to a decrease in market prices. According to the law of demand, if supply increases and demand remains the same, prices will fall. This is beneficial for consumers, who can purchase goods or services at lower prices. Secondly, it can lead to an increase in competition among producers. As it becomes more profitable to produce, more producers may enter the market, leading to increased competition.

However, it's important to note that this increase in supply is not guaranteed. Other factors can influence a producer's decision to increase output, such as the demand for the product, the capacity for increased production, and market conditions. For example, if there is not enough demand for the product, producers may choose not to increase their output despite the lower production cost.

In conclusion, a decrease in production cost can lead to an increase in supply in a market, as it becomes more profitable for producers to produce more. However, this is dependent on other market conditions such as demand and production capacity.

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