Question

What happens to the equilibrium price of a good when supply of that good increases?

Answer 1

When the supply of a good increases while the demand remains unchanged, it leads to a situation of excess supply at the original equilibrium price. In this case, sellers are offering more of the good than buyers are willing to purchase at that price. To sell off the surplus stock, sellers start reducing the price. As the price falls, quantity demanded increases (since the good becomes cheaper for consumers), and quantity supplied decreases (since producers may not find it as profitable). This adjustment continues until a new equilibrium is reached where supply equals demand. Therefore, an increase in supply generally leads to a fall in the equilibrium price and an increase in equilibrium quantity.