Managerial Economicsintermediate
Explain the expected equilibrium effects of an increase in supply when demand is unchanged.
Answer
An increase in supply raises equilibrium quantity and lowers equilibrium price, assuming demand remains unchanged. The added supply creates downward pressure on price, and the new intersection with the unchanged demand curve has a higher quantity.
Explanation
### The concept
Equilibrium is found where demand and supply intersect. If supply increases while demand remains unchanged, sellers offer more at each price. The market moves to a new intersection with a lower price and a greater quantity. This is a comparative statics result: it compares the old equilibrium with the new one rather than describing every adjustment step.
### What a good answer covers
- States that equilibrium quantity increases.
- States that equilibrium price decreases.
- Holds demand unchanged.
- Explains the result as a comparison between equilibria.
### Terms
- **Comparative statics**: Comparing equilibrium outcomes before and after a change in a market condition.
### Remember
A supply increase, with demand fixed, means more quantity and a lower equilibrium price.
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