Question

In what direction would equilibrium price and equilibrium quantity move for the flax seeds (i.e. increase, decrease, or not change) if there is an increase in the number of producers of golden organic flax seeds (say, due to change in government certification of organic producers)? Use a graph to illustrate the situation and explain your answer.

Answer 1

Let D and S represent the demand and supply curve of flax seeds. Equilibrium point is determined by the intersection of S and D curve.

Initial equilibrium price=Po

Initial equilibrium quantity=Qo

If number of producers of golden organic flax seeds increase, total supply of flax seeds will increase at every price level. It is shown by movement of S curve towards right. New supply curve is shown as S'. Demand curve remains unchanged in this situation. New equilibrium is attained at the intersection of D and S' curve.

New equilibrium price=P'

New equilibrium quantity=Q'

We can see that P'<Po and Q'>Qo.

It means that equilibrium price will decrease and equilibrium quantity will increase.