Answer to Question #96082 in Microeconomics for Nana

Question

Draw a supply curve for a textbook producer. What happens to it in each of the following scenarios. Please provide short but explicit answers.
a. Retailers cut the price of textbooks
b. A technological advance allows the textbooks to be produced at lower cost
c. The producers raise the price of textbooks.

Answer 1

1.When the retailer decreases its price, there is no change in the price for producer as he will supply the given quantity with same price. Due, to this the supply curve for the producer remains the same. However, if the demand by the retailers increases the demand curve would shift from DD1 to DD2, due to which prices will increase of textbooks to P2 and the equilibrium qty. will become Y2.

2. Due to the decrease in production cost, producer is able to supply more quantity with no increase in costs, due to which the supply curve shifts outwards from SS1 to SS2, more quantity gets supplied at same prices.    But with constant demand and increased supply, more quantity could be supplied with decreased prices only, so the price decreases from P1 to P2 and the eq. qty. becomes Y2

3. When producer raises the price of books, there is a movement along the supply curve. With increased prices, the quantity demanded is less due to which equilibrium quantity decreases from Q1 to Q2. There will be an excess supply of textbooks in the market of Y3-Y2 and the given price, quantity demanded will be Y2.