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.
When there is an increase in supply and no change in demand, the effect on price and quantity can be determined by analyzing the supply and demand curves.
To solve this, you'll need to understand the basic principles of supply and demand.
1. Start by drawing a supply and demand graph, with price on the vertical axis and quantity on the horizontal axis.
2. Plot the initial supply and demand curves.
3. When there is an increase in supply, the supply curve shifts to the right. This means that at every price level, there is now a greater quantity of goods or services available.
4. Since the demand curve has not changed, it remains in its original position.
5. The intersection of the new supply curve with the unchanged demand curve will determine the new equilibrium price and quantity.
6. If the increase in supply is greater than the increase in demand, the new equilibrium price will be lower than the original price, and the new equilibrium quantity will be higher than the original quantity.
In summary, when there is an increase in supply and no change in demand, the price will generally decrease, and the quantity will increase. This change occurs because there is more supply relative to demand, creating downward pressure on price.
It's important to note that other factors, such as elasticity of demand or supply, can influence the magnitude of these price and quantity changes.