Home  Changes in demand and supply

Department of Economics

Activities 1 2  

Increase in supply

An increase in supply will result in a decrease in the price of the product and an increase in the quantity exchanged, ceteris paribus

Some of the factors that cause a shift of the supply curve is the prices of alternative products, prices of joint products, prices of inputsexpected future prices, technology and number of firms (sellers) (more).

In the event of an increase in supply, for instance an increase in the number of firms,  the supply curve will shift to the right to S1S1 and a movement to a new equilibrium at E2 with a lower equilibrium price  P2 and higher quantity  Q2 occurs. (more) The opposite happens if the supply decreases. (more)

During this process demand  remains unchanged, but the quantity demanded increases as the price of the product decreases.  In other words, there is a downward movement along the demand curve.  

In the event of an excess demand for a product, the price will rise;  and in the event of an excess supply of the product, the price will decline.(more)

A decrease in the cost of production will cause an increases in supply, the equilibrium price will decrease and the quantity increases. 
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