What happens if supply increases

A change in demand will cause equilibrium price and output to change in thesame direction. A decrease in demand will cause a reduction in the equilibrium price and quantity of a good. The decrease in demand causes excess supply to develop at the initial price. Excess supply will cause price to fall, and as price falls producers are willing to supply less of the good, thereby decreasing output. An increase in demand will cause an increase in the equilibrium price and quantity of a good. The increase in demand causes excess demand to develop at the initial price.

Excess demand will cause the price to rise, and as price rises producers are willing to sell more, thereby increasing output. Basically, when it anticipates a recession , it begins to lower interest rates, and it raises rates when the economy is overheating. The law of supply and demand is also reflected in how changes in the money supply affect asset prices. Cutting interest rates increases the money supply. However, the amount of assets in the economy remains the same but demand for these assets increases, driving up prices.

More dollars are chasing a fixed amount of assets. Decreasing the money supply works in the same way. Assets remain fixed, but the number of dollars in circulation decreases, putting downward pressure on prices, as fewer dollars are chasing these assets.

Federation of American Scientists. Accessed March 21, Consumer Affairs. Federal Trade Commission. Office of Energy Efficiency and Renewable Energy. University of California San Diego. Stock Markets.

Behavioral Economics. Actively scan device characteristics for identification. Use precise geolocation data. Select personalised content. Create a personalised content profile. Measure ad performance.

Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. The law states that the higher the price of a product the fewer people will demand the product.

As a consumer, the higher a product costs the less the amount of the product the consumer will purchase. This means the opportunity cost of buying that product goes down. Supply refers to the quantities of product manufactures or owners are willing to sell at different prices at a specific time.

The higher the price will result in higher the quantity supplied. Bear with me OK, so we now know that demand and supply can be drawn as an X on an L shaped graph.

Just like the picture on the right. After the buyers and sellers bargain with each other until everyone is happy the market price and quantity stabilize. This is called the equilibrium--the point Q0, P0 on the graph--and it means that those willing and able to buy the good are the ones who get it, and those willing and able to sell the good are the ones who sell.

Just so you know I'm not using sleight of hand, remember, all of this hinges on you agreeing that people buy more at low prices and sellers want to sell more at high prices, that's all. Now that the market is stable, we can start to figure out why prices and quantities change.

There are only 4 things that can change a price: Demand increases, Demand decreases, Supply increases or Supply decreases. If you understand these 4 cases, you can identify the cause of almost any price or quantity change in any market--that's a pretty powerful statement, but supply and demand is a pretty powerful tool.

Increases and decreases in supply and demand are represented by shifts to the left decreases or right increases of the demand or supply curve.