Question

Explain the following diagram.

Answer 1

The diagram relates to the concept of change in supply.

1. SS curve is the original supply curve.
2. When supply increases, the supply curve shifts to the right. It is denoted by S₁S₁ curve. At OP price, supply increases from PQ to PR.
3. Supply curve S₂S₂ indicates the situation of a decrease in supply. The producer is now willing to supply less quantity, i.e., PK, at the same price.