HL Economics

Chapter 3: Market Equilibrium and Efficiency

1) Identify three reasons why the supply of oranges, for example, might increase and explain how this change will result in a new equilibrium.

The supply of oranges may increase due to the more efficient technology,  increase in the size of market, or because of the good weather. More efficient technology or possibly a lower priced fertilizer can cause the supply of oranges to increase because of the decrease in production cost, thus allowing an increase in supply. With this increase in supply, yet no change in the demand, it will result in a new equilibrium as the supply curve shifts to the right and moving the equilibrium down to the right from it’s original point.

Another reason for the increase in the supply of oranges include an increase in market size. If oranges begun to be sold online or more markets start to demand for oranges with an increase in its substitute good (like apples), it will cause the supply of oranges to increase. In this case, the new equilibrium will shift to the right from it’s origin because of the increase in both demand and supply of oranges. Lastly, a better and sunnier weather would cause an increase in the supply of oranges because of its increase in production with the more sunlight these natural resources are able to absorb in. Increase in the supply in this situation would have a similar movement in the new equilibrium as the first condition. Overall, the increase in the supply of oranges will result in a new equilibrium as the supply curve will shift or have a movement to the right from its original spot.

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