If demand for a good is represented by curve D in Figure 5-10, what will the imp

Question

If demand for a good is represented by curve D in Figure 5-10, what will the impact of an increase in supply of the good be on price, the equilibrium quantity and seller’s total revenue?

If demand for a good is represented by curve D' in Figure 5-10, what will the impact of a decrease in supply of the good be on price, the equilibrium quantity and seller’s total revenue?

If demand for a good is represented by curve D” in Figure 5-10, what will the impact of an increase in supply of the good be on price, the equilibrium quantity and seller’s total revenue?

Explanation / Answer

The increase in the suply is the rightward shift of the supply curve.

If the demand curve is like D, the increase in supply will not affect the price and the quantity and the sellers revenue increase by a small amount. The demand curve is perfectly elastic.

If the demand curve is like D*, the increase in supply will decrease the equilibrium price and sellers revenue. At lower prices the total revenue earned will be less than previously. Here the quantity of output will remain the same.

If the demand curve like D**, the increase in the will lower the equilibrium price, increase the quantity of output and the effect on revenue will be ambigious.

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