Fall in supply - effect on equilibrium price, Managerial Economics

Fall in Supply

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When the supply falls, the supply curve shifts to the left to position S1S1.  At the initial equilibrium price P1, quantity supplied falls from q1 to q21 but the quantity demanded is still q1. This creates excess of demand over supply which causes price to rise to a new equilibrium level P21 and quantity to fall to a new equilibrium level q21 and quantity to fall to a new equilibrium level q2.

Posted Date: 11/27/2012 6:21:41 AM | Location : United States

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