Friday, May 16, 2008

A Decrease in Supply

Click on the diagram above to enlarge it.

An decrease in supply is represented by a shift of the supply curve to the left.
Ceteris paribus, in the new equilibrium:

Supply has decreased. (The supply curve shifted to the left.)
Demand is unchanged. (The demand curve did not move.)
The quantity supplied decreased to the new equilibrium quantity.
The quantity demanded decreased to the new equilibrium quantity.
The equilibrium price increased.

1 comment:

  1. Hi, I'm taking intro to economics and I still don't understand why a decrease in supply will cause the price to increase?

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