Fall in supply - effect on equilibrium price, Managerial Economics

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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 q_2.

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