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Economic Theory

A movement along the same curve simply indicates changes in
quantities offered as a result of a change in the price. When supply
changes not due to changes in the price of the product but due to other
factors, such as change in technology, changes in the prices of related

commodities, changes in price of inputs etc., it is said to be shifts in supply
curve.

Supply is said to increase (supply curve shifts to the right) when, price
remaining same, more is offered for sale and decrease (supply curve shifts
to the left) when, at the same price, less is offered for sale in the market.
When there is a change in price (rise/fall), supply also changes

(increases/decreases) and the phenomena is called extension and
contraction in supply. In this case, equilibrium point moves along the same
supply curve-either to left or right.

4. Market Equilibrium
Because the graphs for demand and supply curves both have price on

the vertical axis and quantity on the horizontal axis, the demand curve and
supply curve for a particular good or service can appear on the same graph.
Together, demand and supply determine the price and the quantity that will

be bought and sold in a market.
When two lines on a diagram cross, this intersection usually means
something. The point where the supply curve (S) and the demand curve
(D) cross, designated by point E in Figure 5.3, is called the equilibrium.

Figure 5.3 – Demand and Supply in Equilibrium

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