Supply Curve Shift Due to Cost Changes

Steps:

• Identify the shift direction: S1 to S2 indicates a rightward shift, meaning more supply at each price.
• Recall supply shifters: Changes in input costs, like labor, affect the entire curve.
• Analyze labor costs: A fall reduces production expenses, encouraging more output.
• Conclude the cause: This cost decrease shifts supply rightward.

Why B is correct:

• A fall in labor costs lowers variable production costs, increasing quantity supplied at every price level per the law of supply.

Why the others are wrong:

• A: A fall in product price causes a movement up along S1, not a shift.
• C: A rise in product price causes a movement down along S1, not a shift.
• D: A rise in labor costs increases production expenses, shifting supply leftward.

Final answer: B