Answer to Question #242440 in Microeconomics for Zai

Question

Explain and draw the view that an increase in price will lead to an increase in quantity supplied, whilst an increase in supply will lead to a decrease in price

Answer 1

Supply means the amount of some goods or services a producer is willing to supply at each price. The producer supply more goods or services at a higher price because the higher the selling price justifies the higher opportunity cost of each additional unit sold. Therefore this leads to increase in price and increase in quantity supplied.

When supply exceeds demand for a good or services, prices will decline. If there is an increase in supply for goods and services while demand remains the same, prices tends to decline to a lower equilibrium price and a higher equilibrium quantity of goods and services.