Determinants of a Firm’s Supply Curve
- Technological Progress
- Input Prices
How are the equilibrium price and quantity affected when demand and supply curves shift in opposite directions?
How are the equilibrium price and quantity affected when both demand and supply curves shift in the same direction?
Suppose the demand and supply curves of salt are given by:
qD = 1,000 − p qS = 700 + 2p
(a) Find the equilibrium price and quantity.
(b) Now, suppose that the price of an input that used to produce salt has increased so, that the new supply curve is
qS = 400 +2p
How does the equilibrium price and quantity change? Does the change conform to your expectation?
(c) Suppose the government has imposed a tax of Rs 3 per unit of sale on salt. How does it affect the equilibrium rice quantity?