Shifting the supply curve to the right or left will change the equilibrium price and quantity. Let's return to an earlier example. Say that cacao prices rise, remembering that cacao is an important input to the production of chocolate bars. With a decrease in supply and no change in demand, the market for chocolate bars would look like this:
Notice that when the supply curve shifts to the left (from S1 to S2), the equilibrium price rises from $1.20 to $1.60 and the equilibrium quantity decreases from 300 to 200. So, a decrease in supply will cause the equilibrium price to increase and the equilibrium quantity to decrease.
Now imagine that new technology is developed in the chocolate bar industry. This change would lead to an increase in the supply of chocolate bars, shifting the supply curve for chocolate bars to the right. With an increase in supply and no change in demand, the market for chocolate bars would look like this:
Notice that when the supply curve shifts to the right (from S1 to S2), the equilibrium price decreases from $1.20 to $0.80 and the equilibrium quantity increases from 300 to 400. So, an increase in supply will cause the equilibrium price to decrease and the equilibrium quantity to increase.
The chart below describes how a change in supply affects the equilibrium price and equilibrium quantity. When supply increases, the curve shifts right, the equilibrium price decreases, and the quantity increases. When supply decreases, the curve shifts to the left, the equilibrium price increases, and the quantity decreases.
|Increase in supply||Decrease in supply|
|Supply curve shift||Right||Left|