A Reduction in Supply

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Again, we begin our study with the energy bar being priced at $1.00 when 15 million bars are bought and sold every week. But say with course of time the cost of manufacturing the bar rises. This might occur if the cost of raw materials rises or the employee wages scales up. And, thus the energy supply of bar drops down too. The fall in supply moves the supply curve on the left side. The quantity demanded is seen to drop down, where the equilibrium value is $1.50 for a bar. Again, equilibrium quantity is seen reduced to 10 million bars a week.

With these observations the following estimates can be made:

  1. When supply upsurges, the price drops while the quantity rises.
  2. When supply shrinks, the cost of the item increases but the quantity scales down.

The cases where either supply or demand changes, the consequent effect on the quantity and the price is observed. Either of the parameter changes while others remain the same. Practically in real market both supply and demand are subjected to change together. For the prediction of the market status for such cases, we are to coagulate the individual effects together. This forms the final check point of the chapter.


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