Suppose the supply of television sets increases

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Unformatted text preview: EXAMPLE: Supply Changes Cause Changes to Equilibrium Price Now let’s return to Exhibit 6-3. Suppose the supply of television sets increases. (Recall the discussion in Chapter 5 of the factors that can shift the supply curve for a good, including resource prices, technology, taxes, and so on.) The supply curve in Exhibit 6-3(c) shifts to the right, from S1 to S2. At $300, the quantity supplied (using the new supply curve, S2) 136 Chapter 6 Price: Supply and Demand Together is 300,000, and the quantity demanded (using D1) is 200,000. Quantity supplied is greater than quantity demanded, so a surplus exists in the television market. Price begins to fall, and the television market moves to point 2, where it is in equilibrium again. The new equilibrium price is $200. Thus, an increase in the supply of a good will decrease the price, all other things remaining the same. Now suppose the supply of television sets decreases, as in Exhibit 6-3(d). The supply curve shifts leftward, from S1 to S2. At $300, the quantity supplied (using S2) is 100,000, and the quantity demanded (using D1) is 200,000. Because quantity demanded is greater than quantity supplied, a shortage exists in the television market. Price begins to rise, and the television market moves to point 2, where it is again in equilibrium at the new equilibrium price of $400. We conclude that a decrease in the supply of a good will increase the price, all other things remaining the same. The supply of oranges in Florida and California is greater in year 2 than in year 1. As a result, the supply curve of oranges in year 2 lies to the right of the supply curve of oranges in year 1. If the demand curve for oranges in both years is the same, then the price of oranges will be lower in year 2 than in year 1. EXAMPLE: Changes in Supply and in Demand at the Same Time Until now, we have looked at cases in which either demand changed and supply remained constant, or supply changed and demand remained constant. In the real world, of course, both demand and supply can change...
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This document was uploaded on 01/16/2014.

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