Scenario Which Curve(s) Shift? In which direction? Impact on Equilibrium Price and Equilibrium Quantity? In the...

Scenario	Which Curve(s) Shift? In which direction?	Impact on Equilibrium Price and Equilibrium Quantity?
In the market for apples, orchard productivity of apple increases and a new medical report touts the discovery of new health benefits of apples, what happens to the equilibrium price and output?

Solutions

Expert Solution

1. If orchard productivity increases then it will increase the supply of orchards as more orchards can be produced with same amount of resources. Similarly, if a new medical report discovers health benefits of apples then it will increase the demand for apples. To summarise:
- Supply increases and hence supply curve shifts to the right
- Demand increases and hence demand curve shifts to the right

2. The above can be represented graphically -

This will unambiguously result in an increase in equilibrium quantity from Q to Q' as shown above. However, the equilibrium price may increase, stay same or decrease depending on the extent of the shift of both curves -

1. If increase in supply < increase in demand, then equilibrium price will increase.

2. If increase in supply = increase in demand, then equilibrium price will stay constant.

3. If increase in supply > increase in demand, then equilibrium price will decrease.

Rahul Sunny answered 8 months ago

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