Explain the chain of effects of an increase in supply of a commodity on its equilibrium price.

Explain the chain of effects of an increase in supply of a commodity o

1.	Explain the chain of effects of an increase in supply of a commodity on its equilibrium price.
Answer» Solution :An INCREASE in supply of a COMMODITY leads to a shift in the supply curve rightwards. When supply increases, it creates an excess supply at the old equilibrium price. This leads to a competiton among sellers, which reduces the price. Decrease in price leads to an increase in demand and fall in supply. These changes continue till a NEW equilibrium is achieved. Eventually, equilibrium price falls and equilibrium quantity RISES.