How to Read Shifts in the Supply Curve

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The quantity of an item that either an individual firm or a market of firms supplies is determined by a number of different factors. The supply curve represents the relationship between price and quantity supplied, with all other factors affecting supply held constant. What happens when a determinant of supply other than price changes, and how does this affect the supply curve?

The Supply Curve

The Supply Curve

 Jodi Beggs

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.

An Increase in Supply

An Increase in Supply

Jodi Beggs

An increase in supply can be thought of either as a shift to the right of the demand curve or as a downward shift of the supply curve. The shift to the right shows that, when supply increases, producers produce and sell a larger quantity at each price. The downward shift represents the fact 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.

A Decrease in Supply

A Decrease in Supply

   Jodi Beggs

In contrast, a decrease in supply can be thought of either as a shift to the left of the supply curve or as an upward shift of the supply curve. The shift to the left shows that, when supply decreases, firms produce and sell a smaller quantity at each price. The upward shift represents the fact 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.)

Shifting the Supply Curve

Shifting the Supply Curve

  Jodi Beggs

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 (i.e. an increase along the quantity axis). This will be the case regardless of whether you're looking at a demand curve or a supply curve.

Non-Price Determinants of Supply

Non-Price Determinants of Supply

 Jodi Beggs

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

  • Input Prices: An increase in input prices will shift the supply curve to the left. Conversely, a decrease in input prices will shift the supply curve to the right.
  • Technology: An increase in technology will shift the supply curve to the right. Conversely, a decrease in technology will shift the supply curve 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 will shift market supply to the left.