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| Let us suppose that the market demand and market supply curve intersect each other at point E. Now the number of firms in the market increases. What will be the effect on equilibrium price and equilibrium quantity? |
Increase in quantity, decrease in price Increase in quantity, increase in price Decrease in quantity, decrease in price Decrease in quantity, increase in price |
| Increase in quantity, decrease in price |
| Let us discuss the impact of an increase in the number of firms. Since at each price now more firms will supply the commodity, the supply curve shifts to the right but it does not have any effect on the demand curve. This means there is excess supply. So quantity increases and we know that excess supply leads to decrease in prices. So, we can say that there will be a decrease in price of the commodity and increase in the quantity produced compared to the initial situation. |
