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sem
sem
Student
Graduate School

What would be the effect of increase in supply on the equilibrium price?

the question as a whole actualy is this..

briefly discuss the factors which could lead to an increase in the supply of tables and evaluate the effect of an increase in supply on the equilbrium price of tables?

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Posted by sem on Tuesday June 16, 2009 at 4:18 PM and tagged with business, demand, economics, supply.

Answers:

  1. krishna-agrawala
    krishna-agrawala Teacher
    Graduate School

    eNotes Editor

    Equilibrium prices in the context of supply and demand refers to the ruling price in a market where quantity of a good (like tables) supplied by manufacturers or the quantity that they are willing to supply, exactly equals the quantity of the good demanded by customers or the quantity they are willing to buy at that price.

    The quantity of a good that customers are willing to buy at different prices can be represented by a demand curve. This is a graph of demand represented on X-axis versus price represented on Y-axis. Similarly supply can be represented by a supply curve, in which supply is represented on X-axis and price is represents on Y-axis.

    When we draw the demand and supply curves on a common graph we observe that demand curve is a downward sloping curve. That is demand increases with reduction in price. In contrast the supply curve is an upward sloping curve. The supply increases with increasing price. The equilibrium price occurs when supply curve intersects the demeaned curve, At this price supply is exactly equal to demand.

    The equilibrium price can increase in one of the two ways.

    1. The demand curve shifts to the right. That is for some reason customers are willing to buy more of a product at the same price.
    2. The supply curve shifts to the left. That is for some reason manufactures are willing to supply less quantities for the same price.

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    Posted by krishna-agrawala on Thursday June 25, 2009 at 8:36 PM