Explain two reasons for an outward shift in the supply curve

An outward shift in the supply curve means that for each level of quantity supplied of a good/service, the price has decreased. One reason for this could be a positive supply shock, for example a period of good weather can increase the crop harvest, or a sudden discovery of new oil reserves could decrease the price of oil, thus reducing costs of production for the firm. A supply shock is an event that unexpectedly changes the supply of a commodity or service, which in turn affects the equilibrium price of the good/service. Another reason for an outward shift in the supply curve is the introduction of a government subsidy. A subsidy is where the government gives money directly to firms to encourage the production of a good/service that's beneficial to society. As firms receive money from the government, their supply curve shifts outward as they are able to supply more products at each price level because their costs of production have decreased.

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Answered by Gabriella T. Economics tutor

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