Illustrative Examples: How Increased Supply Affects Equilibrium Price & Quantity

📚 Quick Study Guide: Supply & Equilibrium

• 🔍 Equilibrium Defined: This is the market state where the quantity demanded by consumers precisely matches the quantity supplied by producers. There's no surplus or shortage.
• 📈 Increase in Supply: Graphically, an increase in supply is represented by a rightward shift of the entire supply curve. This indicates that producers are willing and able to offer more of the good at every given price.
• 📉 Impact on Equilibrium Price: When supply increases, and demand remains constant, there's a temporary surplus at the original price. Competition among sellers to offload excess goods drives the market price down.
• 🛒 Impact on Equilibrium Quantity: As the price falls due to increased supply, consumers are incentivized to buy more. This movement along the demand curve leads to an increase in the quantity demanded, resulting in a higher equilibrium quantity.
• 💡 Ceteris Paribus: This analysis assumes 'all other things being equal' (ceteris paribus). Factors affecting demand (like consumer income, tastes, or prices of related goods) are held constant.
• 📊 New Equilibrium: The market settles at a new equilibrium point where the new, shifted supply curve intersects the original demand curve. This new point will always have a lower equilibrium price and a higher equilibrium quantity.
• ⚖️ Real-World Example: Imagine a bumper harvest of avocados 🥑. This increased supply would likely lead to lower avocado prices and more avocados being sold in the market.

🧠 Practice Quiz: Supply & Equilibrium

1. When the supply of a product increases, assuming demand remains unchanged, what is the immediate effect on the equilibrium price?

A) It increases.

B) It decreases.

C) It remains the same.

D) It becomes unpredictable.

2. An increase in supply in a typical supply and demand graph is represented by:

A) A rightward shift of the supply curve.

B) A leftward shift of the supply curve.

C) An upward movement along the supply curve.

D) A downward movement along the supply curve.

3. If a new, highly efficient automated production process is introduced for manufacturing cars, what would be the likely impact on the equilibrium price and quantity of cars?

A) Price increases, Quantity decreases.

B) Price increases, Quantity increases.

C) Price decreases, Quantity decreases.

D) Price decreases, Quantity increases.

4. When the supply of a good increases, leading to a new equilibrium, what happens to the quantity demanded at this new equilibrium point?

A) It decreases due to the lower price.

B) It remains the same, as demand hasn't shifted.

C) It increases due to the lower price.

D) It shifts the demand curve to the right.

5. Which of the following would typically lead to an increase in the supply of coffee beans?

A) A widespread drought in coffee-growing regions.

B) A new, more productive coffee plant variety is developed.

C) An increase in the price of coffee.

D) A decrease in consumer preferences for coffee.

6. Consider a market graph where the initial equilibrium is at point $E_1$. If the supply curve shifts to the right (representing an increase in supply) while the demand curve stays constant, the new equilibrium ($E_2$) will feature:

A) A higher equilibrium price and a lower equilibrium quantity.

B) A higher equilibrium price and a higher equilibrium quantity.

C) A lower equilibrium price and a lower equilibrium quantity.

D) A lower equilibrium price and a higher equilibrium quantity.

7. The government introduces a new subsidy for solar panel manufacturers. How would this policy likely affect the equilibrium price and quantity of solar panels?

A) Price decreases, Quantity increases.

B) Price increases, Quantity decreases.

C) Both price and quantity increase.

D) Both price and quantity decrease.