The Effect of Supply Curve Shift on Market Equilibrium

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  • Topic: Supply and demand, Foundations of Economic Analysis, Economic equilibrium
  • Pages : 1 (399 words )
  • Download(s) : 28
  • Published : December 4, 2012
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If supply curve shifts, how it is going to affect the market equilibrium. How market will resettle to the new equilibrium??

Changes in price result in movement along the supply curve, changes in other relevant factors cause a shift in supply, a shift of the supply curve to the left or right such a shift results in a change in quantity supplied for a given price level. If the change causes an increase in the quantity supplied at each price level. If the change causes an increase in the quantity supplied at each price, the supply curve would shift to the right. There are several factors that may cause a shift in a good's supply curve. Some supply shifting factors include: Prices of other goods that is the supply of one good may decrease if the price of another good increases, causing producers to reallocate resources to produce larger quantities of the more profitable good. Another factor is the number of sellers; more sellers result in more supply, shifting the supply curve to the right. Prices of relevant inputs; if the cost of resource used to produce a good increases, sellers will be less inclined to supply the same quantity at a given price, and the supply curve will shift to the left. Also, technology which is technological advances that increase production efficiency shift the supply curve to the right, finally the expectations; if the sellers expect prices to increase, they may decrease the quantity currently supplied at a given price in order to be able to supply more when the price increases, resulting in a supply curve shift to the left. As we know that the equilibrium price is the price at which the quantity demanded equals the quantity supplied it is determined by the intersection of the demand and supply curves, an increase in supply, all other things unchanged, will cause the equilibrium price to fall; quantity demanded will increase, a decrease in supply will cause the equilibrium price to rise; quantity demanded will decrease. Finally, How...
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