SA SePAPeQTR, TRA TRRefer to the diagram above. What will happen at the market if supply increases?price goes down and total revenue goes downprice goes up and total revenue goes downdemand goes up and total revenue goes downprice goes down and total revenue goes up

Answered: SA Sq PA Pg Q TRg TRg TE fer to the…

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter5: Markets In Motion And Price Controls

Section: Chapter Questions

Problem 1P

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SA Se
PA
Pe
Q
TR, TRA TR
Refer to the diagram above. What will happen at the market if supply increases?
price goes down and total revenue goes down
price goes up and total revenue goes down
demand goes up and total revenue goes down
price goes down and total revenue goes up

Expert Solution

Step 1

Referring to the LHS Diagram:

When the supply increases from SA to SB, there is a rightward shift in the supply curve. Initially the price was PA and now the price is PB. When supply increases price decreases.

Referring to the RHS Diagram:

Initially when the supply was SA and price was PA, Total Revenue was TRA. When there is an increase in the supply and price decreases, Total Revenue drives down to TRB. We can observe in the diagram that TRB<TRA.

So, total revenue decreases.

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