Consider a market that is in equilibrium. If it experiences a decrease in supply, what will happen?
If a market that is in equilibrium experiences a decrease in supply (assuming no change in demand), the following will occur: Shortage: The decrease in supply will cause a shortage at the original equilibrium price, because the quantity supplied at that price will be less than the quantity demanded. Price Increase: Due to this shortage, there will be upward pressure on the price. As the price rises, the quantity demanded will decrease (due to the law of demand), and the quantity supplied will increase (due to the law of supply), until a new equilibrium is reached. New Equilibrium: The market will establish a new equilibrium at a higher price and a lower quantity than before. This is because the reduced supply has shifted the supply curve to the left, leading to a new intersection point with the demand curve at a higher price level and lower quantity. In summary, a decrease in supply, with demand held constant, will lead to an increase in the equilibrium price and a decrease in the equilibrium quantity in the market.