“snail mail” to email and other digital messages.

Figure 3.18 (a) shows the shift in supply discussed in the following steps.

Step 1. Draw a demand and supply model to illustrate what the market for the U.S. Postal Service looked like
before this scenario starts. The demand curve D0 and the supply curve S0 show the original relationships.

Step 2. Did the described change affect supply or demand? Labor compensation is a cost of production. A

change in production costs caused a change in supply for the Postal Service.

Step 3. Was the effect on supply positive or negative? Higher labor compensation leads to a lower quantity

supplied of postal services at every given price, causing the supply curve for postal services to shift to the left,
from S0 to S1.

Step 4. Compare the new equilibrium price and quantity to the original equilibrium price. The new equilibrium
(E1) occurs at a lower quantity and a higher price than the original equilibrium (E0).
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