Shift out in Supply leads to increase in Q, decrease in P

As we know, supply can shift out for several reasons. The most common being the entry of new firms and a reduction in production costs. Suppose the wholesale cost of the main components in DVD players falls. This will shift out the supply curve for DVD players as firms find it cheaper to produce them.

On the graph to the right, the initial supply curve is given by S1 and the equilibrium price and quantity are and , respectively. Due to a drop in the manufacturing cost of DVD players, the supply curve for these units shifts out to S2. This, in turn, causes equilibrium price to fall to and equilibrium quantity to increase to .

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