Supply Curve Shifts from Cost Changes

Steps:

• Observe the supply curve shift from S to S1, indicating a change in supply determinants.
• Recall that supply shifts rightward (increase) when production costs fall, allowing more output at each price.
• Rule out demand-side factors, as they affect the demand curve, not supply.
• Confirm the shift aligns with a cost reduction for airlines.

Why A is correct:

• A decrease in costs reduces the minimum price needed to supply a given quantity, shifting the supply curve rightward per the law of supply.

Why the others are wrong:

• B: Affects demand curve by shifting it leftward, not supply.
• C: Raises costs, shifting supply leftward (decrease in supply).
• D: Increases demand, shifting the demand curve rightward, not supply.

Final answer: A