posted by AL on .
What happens to price and quantity when Increase in Supply and No change in Demand? How do I solve this?
Thank you for using the Jiskha Homework Help Forum. With an increase in supply and no change in demand, the price will fall. There are more items than can be sold! There is a need to either increase the demand or decrease the supply.
Try a simple graph of supply and demand functions.
label dollars per item on the x axis
label number sold on the y axis
Now draw a simple straight line from the upper left to lower right. Call it a simple Demand function. As the price goes up, the demand will go down.
Draw another straight line from the origin toward the upper right. Call it a very simple supply function. As the price goes up, I will hire more workers and supply more and more.
The equilibrium number and price will be where those lines cross each other.
NOW, tilt the Supply line up and look at the new intersection.
They will now cross at a point to the left and above the original point. In other words the price goes down and the number sold goes up.