SUPPLY DIMAND microeconomics 4 Assume (hat a competitive market is in equilibrium. what happens to the equilibrium when ( Show graphically and explain briefly) 8 Increase in (he price of a substitute good Increase in the price of a complement good S' S P S' A S B A S S B D B pl B p p' C P P P P A A p D D' : D D 0' D Q Q Q Q 0' Q Q Q' 0' Q Q' Q If the price of good A increases the supply cure If the price of good A increases, the supply shifts left resulting in a higher price for less curve shifts left resulting in a highes price quantity demanded. This leads to an increase for less quantity demanded . This leads in the demand of good 3, which shifts the to a decrease in the demand of good B demand curve right. The new equilibrium The demand curve therefor shifts left for good A is now at B and for good B The new equilibriums are now at 8 and D is now at D Decrease in marginal cost P S s' Marginal cost is the change in total cost that arises when the quantity produced is incremented by one unit. A P If marginal cost decrease. that means more pl B quantity can be produced for the same price therefor Shifting the supply curve right D A new equilibrium clears at point B.