Shifts in Supply

INSERT DIAGRAM HERE.

Shifts in supply occur to the right for increases and left for decreases. At every possible price, there is a different quantity supplied.


Figure 6. An increase in supply is illustrated by a shift of the supply curve to the right.

Figure 7. A decrease in supply is illustrated by a shift of the supply curve to the left.


Things that shift supply

The supply of a product may shift because of changes in

1. the number of producers. A larger number of producers increases the supply. A smaller number of producers decreases the supply.

2. The cost of inputs. Higher input costs decrease supply. Lower input costs increase supply.

3. Technology. Technological innovations tend to increase supply.

4. weather. For agricultural products, goods weather increases supply. Bad weather, such as droughts or floods, decreases supply.

5. expectations. Expectations can either increase or decrease supply.

INSERT DIAGRAM HERE

A decrease in supply is illustrated by a shift of the supply curve to the left.

A decrease in supply can be caused by:

• a decrease in the number of producers.
• an increase in the costs of production (such as higher prices for oil, labor, or other factors of production).
• weather (e.g., droughts, floods, or freezing temperatures decrease agricultural production)
• loss of technology (Technological innovations typically increase supply. If technology were to be lost, there could be a decrease in supply.)
• expectations (e.g., producers might decrease current production if they anticipate more favorable market conditions in the future.)

When there is a decrease is supply with no change in demand, the new equilibrium occurs at a higher market price and smaller quantity.