Question

How is the equilibrium price of a commodity affected by changes in its supply (shift in supply curves)?

Answer 1

• When there is a change in supply, the supply curve shifts, which leads to a new equilibrium price and quantity in the market. If the supply increases, the supply curve shifts to the right.
• At the original price, the quantity supplied becomes more than the quantity demanded, creating excess supply. To sell the surplus, producers lower the price.
• As the price falls, demand increases and supply contracts until a new equilibrium is reached with a lower price and higher quantity.
• Conversely, if the supply decreases, the supply curve shifts to the left.
• At the original price, demand exceeds supply, creating excess demand. This pushes the price up.
• As price rises, demand contracts and supply expands until the market reaches a new equilibrium with a higher price and lower quantity.

Thus, shifts in supply affect both the equilibrium price and the quantity, depending on whether supply increases or decreases.