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Chapter 6: Problem 4

If supply increases and demand is constant, what happens to equilibrium price?

Short Answer

Expert verified
When supply increases and demand remains constant, the equilibrium price decreases.

Step by step solution

01

Understanding Concepts of Economics

Supply in economics refers to the total amount of a certain good that producers are willing and able to sell at a given price while demand refers to how much consumers want to buy at that price. Equilibrium price is the price at which the quantity demanded equals the quantity supplied. It is the price where the supply and demand curves intersect.
02

Consequence of Increased Supply on Equilibrium Price

When supply increases, producers are able to sell more of their product at the same price. In the case of a constant demand, it means that the consumer's willingness to purchase doesn't change. If supply exceeds demand, the surplus of goods can lead to a decrease in their price.
03

Result of Decreased Equilibrium Price

The equilibrium price decreases as a result of increased supply and constant demand. The intersection of the supply and demand curves moves down along the demand curve as a result of the increased supply.

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Most popular questions from this chapter

A producer makes 100 units of good \(X\) at 40 dollars each. Under no circumstances will he sell the good for less than \(\$ 40\). Do you agree or disagree? Explain your answer.

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