New Sellers Enter the Market
More firms in the market shifts supply right, lowering price and raising quantity.
New Sellers Enter the Market
Supply and DemandMore firms in the market shifts supply right, lowering price and raising quantity.
Equilibrium at Quantity 57, Price ($) 44
Start in equilibrium
The market for a popular app begins in equilibrium, with existing developers earning healthy profits.
Now try it yourself: shift the curves in a graded FRQ drill, or open this graph in the free sandbox.
New Sellers Enter the Market, step by step
- 1
Start in equilibrium
The market for a popular app begins in equilibrium, with existing developers earning healthy profits.
- 2
Competitors arrive
Those profits attract new developers into the market. The number of sellers is a determinant of supply, so with more firms producing, more is offered at every price and supply shifts right.
- 3
Price falls, quantity rises
The larger quantity offered creates a surplus at the old price, which pushes the price down until the market clears again at a lower price and a higher quantity.
- 4
Why this is the long-run story
This is the mechanism behind long-run zero economic profit in a competitive market. Profits invite entry, entry raises supply, higher supply lowers price, and the process continues until the extra profit is gone. Nothing stops it except a barrier to entry.
Where it ends up
The equilibrium price falls and the equilibrium quantity rises.
Now draw it yourself
Same graph, graded on whether you move the right curve and leave the rest alone.
More Supply and Demand walkthroughs
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