If there is an increase in supply (from Q1 to Q2) at Price Level (P*), the equilibrium or market price will drop from P2 to P1 (assuming there is no change in demand). For example, if shoe sellers who were initially willing to sell 10 shoes when shoes cost $10/pair (P*), are now willing to sell 12 shoes at $10/pair (P*), the market price for shoes will decrease from P2 to P1 as there has been an increase in the shoe supply relative to demand at all price levels. Similarly, if there is a decrease in demand (from D2 to D1) at Price Level (P*), the equilibrium price will drop from P2 to P1 (assuming there is no change in supply). The equilibrium or market price is a function of supply and demand. To assess the impact on market or equilibrium prices, you have to assess changes in both the demand and supply curves for a given price level. Quantity Price Increase in supply Q2 Q1 Demand curve Supply curve P* Decrease in demand P1 P2 D2
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