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Suppose that a new study finds that eating apples helps improve health. Will this change supply curve?

I think yes. Increase in demand of apples causes more apple producers to spring up. This will increase competition and hence, supply curve will shift right.

But, in the book it says that answer is No. This is because this factor is not one of the

  1. Technology

  2. Related Prices

  3. Input Costs

  4. Competition

  5. Expectations.

So, only the demand will change, and there will only be movement along the curve.

Can someone please explain this to me?

Thanks

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  • $\begingroup$ "This will increase competition" why? $\endgroup$
    – Giskard
    Apr 7, 2022 at 19:37
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    $\begingroup$ @Giskard I thought so, because more firms will be attracted by the huge demand for apples. And firms that make apple-substitutes (like pears) will start to make apples to get on the "apple rush". More competition means less prices, more innovation in the apple industry (e.g. new fertilizers, new harvesters) meaning even more production and less prices. But, yeah, as 1muflon1's answer said, I shouldn't overthink these type of questions))) $\endgroup$
    – MangoPizza
    Apr 8, 2022 at 4:55
  • $\begingroup$ Hi@MangoPizza. Discussion of supply has to take into consideration elasticity of supply, and elasticity of substitution. Suppliers may simply want to meet the demand (and thus shift their supply curve out), but the reality is: the supply of apple orchards is pretty inelastic, and probably has a significant time-lag between planting and harvesting. So, in the short-run, you're likely to see a relatively fixed level of apples, and increased apple prices. $\endgroup$
    – EB3112
    Mar 3, 2023 at 10:04

1 Answer 1

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I think you might be confusing shift in supply and increase in supply of apples in your question.

You are completely right that shift in demand of apples will cause more apples to be supplied to the market. As we can see from the picture below in response to shift in demand, price increases and quantity supplied also increases.

However, supply curve does not shift. We are moving along the supply curve but supply curve itself is fixed in this case. Supply curve represents the firm supply at any arbitrary price. Why would discovery of apples health benefit make suppliers to supply more at any price? Suppliers are not charities, they won’t increase their output at any price just because that would benefit consumers.

Also, market competition does not necessarily increase proportionally with number of firms. If there are 10000 firms and number will change to 10010 firms the level of competition likely remains the same. It is also not guaranteed that the number of firms will change as the shift in demand and increase in quantity might be accommodated by existing firms. Furthermore, market for apples should already be operating under approximately perfect competition since it’s homogenous product with many sellers, thus increase in number of sellers should not be expected to change level of competition at all.

While you could probably construct some convoluted example where competition would be affected, it would represent some special case that’s not representative of what would happen in most cases described by such question.

You should not overthink these simple 101 high-school economics questions. Even if there might be some rare counter examples you should interpret the question as asking what would typically happen to supply conditional on information given.

enter image description here

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