Question

Discuss what happens to the equilibrium price and quantity of Colgate Toothpaste when there is a decrease in the supply of Colgate Toothpaste but no change in the demand. What could cause a decrease in the supply of Colgate Toothpaste but no change in demand?

Answer 1

Ans) When supply of toothpaste decreases but there is no change in the demand, equilibrium price will increase and equilibrium quantity will decrease.

Decrease in supply may occur due to increased labour wages, increase in price of other inputs, decrease in number of sellers etc. But these factors will not affect demand. As the factors which affect demand are÷ income, taste, preference, price of related goods etc.

Below graph shows effect of decrease in supply. That is, supply curve will shift to the left.