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.

2 comments:

  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?

    ReplyDelete
  2. For example, lets say a hurricane destroyed a lot of the crops in Florida, causing a decrease in supply in Orange juice, the supply within the stores won't be as much, causing it to be expensive. If I supplied 5 oranges per store at a cheap price, 1 I would make no profit, 2 it would be sold immediately requiring a need for increase in supply

    ReplyDelete