Question

Last year a firm made 1,000 units of its product available at a price of $5 per unit. This year the firm will still make 1,000 units available, but only if the price is $7 per unit. What is most likely to have happened

Answer 1

Supply has decreased.

Step-by-step explanation:

The law of supply states that an increase in price results in an increase in the amount supplied. However in this scenario an increased price did not result in an increase in supply rather it remained constant.

This can be as a result of supply shift to the left (decrease). Shift in supply occurs as a result of other factors except for price.

As illustrated in the attached when supply shifts to the left, the same amount of goods is supplied at a higher price.