Saturday, September 24, 2016

Am I on the right path when I move the supply curve up?

Yes, you are absolutely on the right path!  In this scenario, supply is dropping.  Paradoxically, a decrease in supply is shown by moving the supply curve upward, or to the left.


As you probably remember, supply can be defined as the amount of a good or service that producers are willing and able to produce at a given price. The scenario that you have been given says that there has been a drought that has...

Yes, you are absolutely on the right path!  In this scenario, supply is dropping.  Paradoxically, a decrease in supply is shown by moving the supply curve upward, or to the left.


As you probably remember, supply can be defined as the amount of a good or service that producers are willing and able to produce at a given price. The scenario that you have been given says that there has been a drought that has affected the strawberry crop.  A drought will tend to make the strawberries grow more poorly, resulting in a smaller harvest.  When this happens, producers will be able to produce fewer strawberries at any given price (because they are producing fewer strawberries overall).  To show this, you have to move the supply curve upward, or to the left, which is what you have done.


By moving the supply curve upward, you have created a new equilibrium point.  At this new equilibrium, the quantity supplied and demanded will be lower and the price will be higher.  This is why a decrease in supply is a bad thing for consumers.

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