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A-Level Economics · Shift in supply diagram question

Why does the price fall from £5 to £4 after the shift?

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The diagram

The answer

At £5 there is now excess supply, which competes the price down. Chain: costs fall → supply shifts right → excess supply at £5 → price competed down → extension of demand along D → new equilibrium at F. Point, cause, consequence. At the old price £5, sellers now want to sell more than buyers will take — that excess supply pushes the price down. Falling price signals, incentivises and rations until the market clears again at £4.

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This is one of 6 questions on the shift in supply diagram — every corner lettered, every wrong answer diagnosed.

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