Market supply may increase if there is an increase in the________

Analyze the question: It asks which factor would cause market supply to increase, meaning the whole supply curve shifts to the right.

Concept: movement along vs. shift of the supply curve

• A change in the price of the product itself causes a movement along the supply curve. Economists call this an "extension" of supply, not an "increase in supply."
• A change in other determinants (cost of production, technology, taxes, subsidies, number of sellers, weather) shifts the curve. A rightward shift is an increase in supply.

Evaluate each option:

• A. Price of the product: This only causes a change in quantity supplied, a movement along the curve. It is not a true increase in supply.
• B. Prices of factors of production: Higher input prices raise the cost of production, so producers supply less at each price. Supply decreases.
• C. Tax paid on raw materials: Tax raises production costs, so supply decreases.
• D. Subsidies on raw materials: A subsidy lowers the cost of production, making production more profitable at every price. Producers supply more, so the supply curve shifts right. Supply increases.

**Answer: D.

Exam tip: Remember "Cost up, supply down; cost down, supply up." Subsidies reduce costs (supply rises), while taxes raise costs (supply falls). Also watch the wording: "increase in supply" means a shift, while "price of the product" only gives a movement along the curve.