Effect of decrease in Supply

The 2^nd effect of changes in supply (shift of supply to left) may be stated as follows.

In the short run, other things being equal, a decrease in supply cause surplus and it will fall the price which in turn extent the demand and contract the supply until it reach a new equilibrium

Diagram to show the effect of increase in supply

 The initial equilibrium is at E_P price and E_Q quantity demanded and supplied.

Due to a change in the …….other than price factor…… supply now decreases

The decrease in supply is shown by a shift of supply curve to S₂S₂ from S₁S₁.

This will results a shortage (at this time, supply is less than demand)  at the ruling price E_P. 

This shortage will push the price upwards.

Now the increased price cause an extension of supply and contraction of demand (as shown by a movement along the curve) until it reach a new equilibrium at price N_EP (higher than E_P) and quantity demanded and supplied N_EQ (less than the E_Q)

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