Shifting the Supply Curve

01
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The Supply Curve

As stated earlier, the quantity of an item that either an individual firm or a market of firms supplies is determined by a number of different factors, but the supply curve represents the relationship between price and quantity supplied with all other factors affecting supply held constant. So what happens when a determinant of supply other than price changes?

The answer is that, when a non-price determinant of supply changes, the overall relationship between price and quantity supplied is affected. This is represented by a shift of the supply curve, so let's think about how to shift the supply curve.

02
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An Increase in Supply

An increase in supply is represented by the diagram above. An increase in supply can either be thought of as a shift to the right of the demand curve or a downward shift of the supply curve. The shift to the right interpretation shows that, when supply increases, producers produce and sell a larger quantity at each price. The downward shift interpretation represents the observation that supply often increases when the costs of production decrease, so producers don't need to get as high of a price as before in order to supply a given quantity of output. (Note that the horizontal and vertical shifts of a supply curve are generally not of the same magnitude.)

Shifts of the supply curve need not be parallel, but it's helpful (and accurate enough for most purposes) to generally think of them that way for the sake of simplicity.

03
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A Decrease in Supply

In contrast, a decrease in supply is represented by the diagram above. A decrease in supply can either be thought of as a shift to the left of the supply curve or an upward shift of the supply curve. The shift to the left interpretation shows that, when supply decreases, firms produce and sell a smaller quantity at each price. The upward shift interpretation represents the observation that supply often decreases when the costs of production increase, so producers need to get a higher price than before in order to supply a given quantity of output. (Again, note that the horizontal and vertical shifts of a supply curve are generally not of the same magnitude.)

Again, shifts of the supply curve need not be parallel, but it's helpful (and accurate enough for most purposes) to generally think of them that way for the sake of simplicity.

04
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Shifting the Supply Curve

In general, it's helpful to think about decreases in supply as shifts to the left of the supply curve (i.e. a decrease along the quantity axis) and increases in supply as shifts to the right of the supply curve (i.e. an increase along the quantity axis), since this will be be the case regardless of whether you're looking at a demand curve or a supply curve.

05
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Revisiting the Non-Price Determinants of Supply

Since we identified a number of factors other than price that affect the supply of an item, it's helpful to think about how they relate to our shifts of the supply curve:

  • Input Prices: An increase in input prices will shift supply to the left. Conversely, a decrease in input prices will shift supply to the right.
  • Technology: An increase in technology will shift supply to the right. Conversely, a decrease in technology will shift supply to the left.
  • Expectations: A change in expectations that increases current supply will shift the supply curve to the right, and a change in expectations that decreases current supply will shift the supply curve to the left.
  • Number of Sellers: An increase in the number of sellers in a market will shift market supply to the right, and a decrease in the number of sellers in a market will shift market supply to the left.

This categorization is shown on the diagrams above, which can be used as a handy reference guide.