• Identify and explain two factors that have caused a shift in the supply curve. Illustrate the impact on the market using supply and demand curves. (6 marks) Note: Please include a graph of supply and demand curve for the answer given below.

The following are some of the factors that have led to a shift in the supply curve:

a. An Increase in Production Cost: An increase in production cost may result in a reduction in the supply of luxury bags. b. A Drop in Supply: A decrease in supply may be caused by: This is because of the fact that rising production costs of luxury bags might drive producers to lower the supply of such bags, which then leads to a decline in the supply of luxury bags. This results in a decrease in the supply of luxury bags. This may be seen by looking at the supply and demand curves shown below, which show that an increase in production costs induces an inward shift of the supply curve, which ultimately results in a fall in the equilibrium price and number of luxury bags.

b. An Increase in Taxes: A rise in taxes can also result in a reduction in the availability of luxury handbags. This is due to the fact that the increased taxes on luxury bags candrive producers to lower the supply of such bags, which then leads to a decline in the supply of luxury bags. This is why there has been a decrease in the supply of luxury bags. This may be seen by looking at the supply and demand curves shown below, which show that an increase in tax induces an inward shift of the supply curve, which ultimately results in a fall in the equilibrium price and number of luxury bags.