Supply, Supply Curve, and Change in Market Equilibrium:
Market equilibrium study is a harder challenge, and it gets tougher when an individual has no idea about several fundamentals of the economic concepts. Thus, it is necessary to have an understanding of all the concepts involved, especially the ones that are more important, like supply and demand.
Starting with the concepts, what do you understand by the supply and supply curve?
Supply is the total quality of all the goods that the seller willingly sells or offers at a sale at:
A given amount
A said time
A decided market, when the other things are constant.
Furthermore, a supply curve is a graphical representation that is useful to explain the supply schedules (also called supply function) effectively. It acts as the logistic planning of the points showing the amount of well supplied at different prices. According to the Law of Supply, the slope of the demand curve is upwards moving.
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Furthermore, let us move on to a supply function (supply schedule). A supply schedule (function) is the mathematical representation of the supplies of the total number of goods and different factors that help in determining the supply.
Qd = f(Px, Y, COP, C, T, Inp, …)
The major determining factors in a supply function are as follows:
Px – The cost of the product
Y – The consumer’s income
COP – Cost of production
C – Number of sellers OR total competition
T – Tax
Inp – Production’s input
Market Equilibrium:
Moving ahead, let us discuss the definition of the market equilibrium.
The market equilibrium is the pair of price and quantity in which the demanded quantity equals the supplied quantity. The representation of Market equilibrium is possible when the market demand and market supply intersects, keeping the other factors constant.
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Changes in Market Equilibrium and its Impacts –
Further, we will start with the discussion on changes in market equilibrium, changes in market price, changes in equilibrium price, and other defining factors. Also, we can explain the changes’ impacts on supplies, prices, and commodity output when the commodity demand stays constant.
Starting with the examination of the increase in supplies, consider that last year India experienced a good monsoon season, thus yielding higher excess and surplus in the number of wheat crops. This would have directly raised the wheat supply across the Indian market, causing a right shift to the supply curve.
Additionally, the increase in wheat supplies has an impact on the equilibrium quantity, and the equilibrium price is mentioned in the below graphical representation.
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Generally, the demand curve (DD) and the supply curve (SS) intersects at point E. This is the factor that determines that OP is the equilibrium price’s measurement, and OQ is the measurement of equilibrium quantity.
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Furthermore, due to the better monsoon season, there must have been a result of bumper wheat crops, thus the supply curve of wheat shifts towards the right from the line SS to the new one, i.e., S1S1. Now, S1S1 (the latest supply curve) intersects DD (the given demand curve) at point E1, determining OP1, the new lower equilibrium price, and OQ1, the larger quantity.
Thus, the increasing supply resulted in the falling price and increase the quantity of equilibrium.
But, rapid enhancements in the technologies, reduced prices for the factors of commodity production or lowered excise duty on any commodity results in the increased commodity supplies.
For example, given, the recent improvements in technology for personal computers’ manufactures served for increasing the personal computers’ supplies. This resulted in the shift in the supply curve towards the right side. Thus, it also resulted in the lowered-down prices of personal computers.
FAQs on Change in Equilibrium Price Due To Shift Supply
Q1: What Do You Understand by the Term Supply. What is the Supply Schedule?
Ans: A commodity’s supply refers to the total value of specific service or goods that the producer willingly sells, corresponding to the different price possibilities of the commodity at the given point of time. Supply might refer to anything related to demand that gets sold in some competitive market, but it mostly refers to the labour, services, and goods. The price of a good is the major factor affecting the supply. Thus, if the price of goods increases, its supply will also rise.
A supply schedule, also known as the supply function, is the mathematical representation of supplies of total goods and other factors helping in determining the supply.
Qd = f(Px, Y, COP, C, T, Inp, …)
The major determining factors in a supply function are as follows:
Px – The cost of the product
Y – The consumer’s income
COP – Cost of production
C – Number of sellers OR total competition
T – Tax
Inp – Production’s input
Q2: Explain Market Equilibrium in Detail.
Ans: Market equilibrium refers to the situation for which the supply of a good is equal to the demand for that particular good. Prices never change when a market is in an equilibrium state. Thus, then we say that market achieved the market-clearing price.
A market is a place where both buyers and sellers meet for exchanging goods and services. The price mechanism in a market is the reference of how demand and supply intersect for setting the market price and the value of goods sold.
Mostly, the planned demand for a good is not equal to the planned supply of it. This state is termed as disequilibrium as then there is either s surplus or shortage, and the firms have some incentive for changing the prices.