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The diagram below relates to the supply of bottled water in Ireland - Leaving Cert Economics - Question 6 - 2008
Question 6
The diagram below relates to the supply of bottled water in Ireland. (i) On the diagram, show the effect which an increase in the price will have on the quantity su... show full transcript
Worked Solution & Example Answer:The diagram below relates to the supply of bottled water in Ireland - Leaving Cert Economics - Question 6 - 2008
Step 1
On the diagram, show the effect which an increase in the price will have on the quantity supplied. Use labels P2 and Q2.
Answer
To illustrate the effect of an increase in price on quantity supplied, you must adjust the original supply curve, S1. First, draw a new price level at point P2 above P1 on the vertical axis. This indicates an increase in price. Then, move horizontally from P2 to intersect the supply curve S1 to establish a new intersection point. This intersection will give you the new quantity supplied, which is indicated by Q2. You should label this new point clearly.
Step 2
On the diagram, show the effect which a reduction in the costs of production will have on the supply curve. Use label S2.
Answer
To reflect a reduction in production costs, you need to shift the entire supply curve to the right. Start from the original supply curve S1 and draw a new supply curve labeled S2, illustrating the increase in supply due to lower production costs. This rightward shift indicates that suppliers are willing to supply more bottled water at any given price, which positively impacts the overall supply in the market.