Read this article to learn about the change in supply of a goods!
Change in supply or shift in the supply curve occurs due to change in any of the factors that were assumed constant under the law of supply.
The change may be either an ‘Increase in Supply’ or ‘Decrease in Supply’. Original Equilibrium is determined at point E, when demand curve DD and the original supply curve SS intersect each other. OQ is the equilibrium quantity and OP is the equilibrium price.
(i) Increase in Supply:
When there is an increase in supply, demand remaining unchanged, the supply curve shifts towards right from SS to S1S1 (Fig. 11.8).
When supply increases to S1S1, it creates an excess supply at the old equilibrium price of OP. This leads to competition among sellers, which reduces the price. Decrease in price leads to rise in demand and fall in supply. These changes continue till the new equilibrium is established at point E1. Equilibrium price falls from OP to OP1 and equilibrium quantity rises from OQ to OQ1.
(ii) Decrease in Supply:
When the supply decreases, demand remaining unchanged, then supply curve shifts to the left from SS to S2S2 as seen in Fig. 11.9.
When supply decreases to S2S2, it creates an excess demand at the old equilibrium price of OP. This leads to competition among buyers, which raises the price.
Increase in price leads to rise in supply and fall in demand. These changes continue till the new equilibrium is established at point E2. Equilibrium price rises from OP to OP2 and equilibrium quantity falls from OQ to OQ2.
For “Effect on equilibrium price and quantity due to increase in number of firms and increase in price of inputs”.