BusinessWeek recently declared, “We have entered the Age of the Internet,” and observed that when markets for goods or services gain access to the Internet, more consumers and more businesses participate in the market. Use supply and demand analysis to predict the effect of e-commerce on equilibrium output and equilibrium price of products gaining a presence on the Internet.
With the increase the e-commerce, people have started using online shopping to buy all types of items. The suppliers take advantage of low costs in terms of storage, rent and display. Therefore, this lower the costs for suppliers create lower price for consumers and the demand shifts to the right. People are induced to purchase products at lower prices and the number of buyers increase which lead to shifting the demand curve to the right. The net effect is an increase in both demand and supply.
From the curve above we can see that the original equilibrium (with the green supply and red demand) occurs at the price of P and quantity of Q.
If more consumers and more business participate in the market, the supply and demand curve will moves to the right (S1 and D1). The equilibrium price decreases from P to P1 and the quantity demanded and supplied increase from Q to Q1.