To understand the impact of an increase in supply, we first need to outline the basic concepts of supply and demand curves. The demand curve typically slopes downwards, indicating that as prices fall, the quantity demanded increases. Conversely, the supply curve generally slopes upwards, meaning that as prices rise, the quantity supplied increases.
When there is an increase in supply, we can visualize this on a graph. The rightward shift of the supply curve signifies that, at every price level, producers are willing to supply more of the good or service than before. This can occur due to various factors, such as advances in technology, reductions in production costs, or an increase in the number of suppliers in the market.
As the supply curve shifts to the right from S1 to S2, the equilibrium price (the point where the supply and demand curves intersect) will decrease. This new intersection point indicates a lower price and a higher quantity of goods exchanged in the market.
In summary, an increase in supply leads to a decrease in the equilibrium price and an increase in the quantity sold, demonstrated by the rightward shift of the supply curve in the supply and demand graph.