Economics
Shifts in Supply
Shifts in supply refer to changes in the quantity of a good or service that producers are willing and able to supply at different price levels. These shifts can be caused by factors such as changes in input prices, technology, expectations, or the number of suppliers in the market. When supply shifts, it results in a new supply curve, reflecting the new relationship between price and quantity supplied.
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eBook - PDF- Steven A. Greenlaw, David Shapiro, Daniel MacDonald(Authors)
- 2022(Publication Date)
- Openstax(Publisher)
3.2 • Shifts in Demand and Supply for Goods and Services 63 FIGURE 3.15 Factors That Shift Supply Curves (a) A list of factors that can cause an increase in supply from S 0 to S 1 . (b) The same factors, if their direction is reversed, can cause a decrease in supply from S 0 to S 1 . Because demand and supply curves appear on a two-dimensional diagram with only price and quantity on the axes, an unwary visitor to the land of economics might be fooled into believing that economics is about only four topics: demand, supply, price, and quantity. However, demand and supply are really “umbrella” concepts: demand covers all the factors that affect demand, and supply covers all the factors that affect supply. We include factors other than price that affect demand and supply by using shifts in the demand or the supply curve. In this way, the two-dimensional demand and supply model becomes a powerful tool for analyzing a wide range of economic circumstances. 3.3 Changes in Equilibrium Price and Quantity: The Four-Step Process LEARNING OBJECTIVES By the end of this section, you will be able to: • Identify equilibrium price and quantity through the four-step process • Graph equilibrium price and quantity • Contrast shifts of demand or supply and movements along a demand or supply curve • Graph demand and supply curves, including equilibrium price and quantity, based on real-world examples Let’s begin this discussion with a single economic event. It might be an event that affects demand, like a change in income, population, tastes, prices of substitutes or complements, or expectations about future prices. It might be an event that affects supply, like a change in natural conditions, input prices, or technology, or government policies that affect production. How does this economic event affect equilibrium price and quantity? We will analyze this question using a four-step process. Step 1. Draw a demand and supply model before the economic change took place.
eBook - PDF- Steven A. Greenlaw, Timothy Taylor(Authors)
- 2014(Publication Date)
- Openstax(Publisher)
If other factors relevant to supply do change, then the entire supply curve will shift. Just as a shift in demand is represented by a change in the quantity demanded at every price, a shift in supply means a change in the quantity supplied at every price. In thinking about the factors that affect supply, remember what motivates firms: profits, which are the difference between revenues and costs. Goods and services are produced using combinations of labor, materials, and machinery, or what we call inputs or factors of production. If a firm faces lower costs of production, while the prices for the good or service the firm produces remain unchanged, a firm’s profits go up. When a firm’s profits increase, it is more motivated to produce output, since the more it produces the more profit it will earn. So, when costs of production fall, 54 Chapter 3 | Demand and Supply This OpenStax book is available for free at http://cnx.org/content/col11626/1.10 a firm will tend to supply a larger quantity at any given price for its output. This can be shown by the supply curve shifting to the right. Take, for example, a messenger company that delivers packages around a city. The company may find that buying gasoline is one of its main costs. If the price of gasoline falls, then the company will find it can deliver messages more cheaply than before. Since lower costs correspond to higher profits, the messenger company may now supply more of its services at any given price. For example, given the lower gasoline prices, the company can now serve a greater area, and increase its supply. Conversely, if a firm faces higher costs of production, then it will earn lower profits at any given selling price for its products. As a result, a higher cost of production typically causes a firm to supply a smaller quantity at any given price. In this case, the supply curve shifts to the left. Consider the supply for cars, shown by curve S 0 in Figure 3.10.
eBook - PDF- Steven A. Greenlaw, Timothy Taylor, David Shapiro(Authors)
- 2017(Publication Date)
- Openstax(Publisher)
Figure 3.15 Factors That Shift Supply Curves (a) A list of factors that can cause an increase in supply from S 0 to S 1 . (b) The same factors, if their direction is reversed, can cause a decrease in supply from S 0 to S 1 . Because demand and supply curves appear on a two-dimensional diagram with only price and quantity on the axes, an unwary visitor to the land of economics might be fooled into believing that economics is about only four topics: demand, supply, price, and quantity. However, demand and supply are really “umbrella” concepts: demand covers all the factors that affect demand, and supply covers all the factors that affect supply. We include factors other than price that affect demand and supply are included by using shifts in the demand or the supply curve. In this way, the two-dimensional demand and supply model becomes a powerful tool for analyzing a wide range of economic circumstances. 3.3 | Changes in Equilibrium Price and Quantity: The Four-Step Process By the end of this section, you will be able to: • Identify equilibrium price and quantity through the four-step process • Graph equilibrium price and quantity • Contrast shifts of demand or supply and movements along a demand or supply curve • Graph demand and supply curves, including equilibrium price and quantity, based on real-world examples Let’s begin this discussion with a single economic event. It might be an event that affects demand, like a change in income, population, tastes, prices of substitutes or complements, or expectations about future prices. It might be an event that affects supply, like a change in natural conditions, input prices, or technology, or government policies that affect production. How does this economic event affect equilibrium price and quantity? We will analyze this question using a four-step process. Step 1. Draw a demand and supply model before the economic change took place.
eBook - PDFMicroeconomics
Theory and Applications
- Edgar K. Browning, Mark A. Zupan(Authors)
- 2019(Publication Date)
- Wiley(Publisher)
In drawing a supply curve, we assume that factors such as technological knowledge and input supply conditions do not vary along the curve. The supply curve shows how variation in price alone affects output. If technology or input supply conditions do change, the supply curve shifts. For instance, if a new technology allows manufacturers to produce flat-screen TVs at a lower cost, the supply curve shifts to the right, as illustrated in Figure 2.4. Because producers’ costs are now lower due to the technological advance, individual producers will want to produce more at any price. After the technological advance, the quantity supplied is greater at each possible price, as shown by the shift in the supply curve from S to S′. The rightward shift in the supply curve reflects an increase in supply. If there is an increase in supply, each quantity will be available at a lower price than before. For example, before the technological advance, 300,000 flat-screen TVs would have been produced only if the price were at least $200; afterward, 300,000 would be produced at a price of $150. Just as with demand curves, we must distinguish a movement along a given supply curve from a shift in supply. A movement along a supply curve occurs when the quantity supplied varies in response to a change in the good’s selling price while the other factors that affect output hold constant. A shift in the supply curve occurs when the other factors that affect output change. movement along a given supply curve a change in quantity supplied that occurs in response to a change in the good’s selling price, other factors holding constant shift of a supply curve a change in the supply curve itself that occurs when the other factors, besides price, that affect output change Figure 2.4 $150 $200 300,000 500,000 Quantity of flat-screen TVs 0 Price S S′ An Increase in Supply For a supply curve, technology and input supply conditions are held constant at all points along the curve.
eBook - PDF- Steven A. Greenlaw, Timothy Taylor(Authors)
- 2015(Publication Date)
- Openstax(Publisher)
Figure 3.9 Factors That Shift Demand Curves (a) A list of factors that can cause an increase in demand from D 0 to D 1 . (b) The same factors, if their direction is reversed, can cause a decrease in demand from D 0 to D 1 . When a demand curve shifts, it will then intersect with a given supply curve at a different equilibrium price and quantity. We are, however, getting ahead of our story. Before discussing how changes in demand can affect equilibrium price and quantity, we first need to discuss Shifts in Supply curves. How Production Costs Affect Supply A supply curve shows how quantity supplied will change as the price rises and falls, assuming ceteris paribus so that no other economically relevant factors are changing. If other factors relevant to supply do change, then the entire supply curve will shift. Just as a shift in demand is represented by a change in the quantity demanded at every price, a shift in supply means a change in the quantity supplied at every price. In thinking about the factors that affect supply, remember what motivates firms: profits, which are the difference between revenues and costs. Goods and services are produced using combinations of labor, materials, and machinery, or what we call inputs or factors of production. If a firm faces lower costs of production, while the prices for the good or service the firm produces remain unchanged, a firm’s profits go up. When a firm’s profits increase, it is more motivated to produce output, since the more it produces the more profit it will earn. So, when costs of production fall, 54 Chapter 3 | Demand and Supply This OpenStax book is available for free at http://cnx.org/content/col11858/1.4 a firm will tend to supply a larger quantity at any given price for its output. This can be shown by the supply curve shifting to the right. Take, for example, a messenger company that delivers packages around a city. The company may find that buying gasoline is one of its main costs.
eBook - ePub- Andrew Barkley, Paul W. Barkley(Authors)
- 2016(Publication Date)
- Routledge(Publisher)
Change in Supply = a change in the supply of a good due to a change in an economic variable other than the price of the good. A shift in the supply curve.Figure 8.8 shows a change in supply.A rightward shift in the supply curve represents an increase in supply, since more hamburgers will reach the market at each price. Similarly, a shift in the supply curve to the left would show a decrease in supply (fewer hamburgers at each price). The increase in supply in Figure 8.8 could result from an increase in the technology available to the firm, or a decrease in production costs. Shifts in the entire supply function represent a change in nonprice determinants of supply. The following section explains these supply determinants.8.4 Determinants of supply
The supply of a good results from the interaction of many economic variables. The list of supply determinants generally considered to be most important includes such things as: (1) input prices, (2) production technology, (3) prices of related goods, and (4) the number of sellers. Therefore, a formula for a supply curve for a good includes own price (P), input prices (Pi ), technology (T), prices of other, related goods (Po ), the number of sellers (N), and a category “Other,” representing all other determinants of supply:(8.15) Qs = f(P | Pi , T, Po , N, Other).Figure 8.8 An increase in the supply of hamburgers in Elko, NevadaA graph of a supply curve condenses all of the determinants into the relationship between the quantity supplied of a good (Qs ) and the own price of the good (P), while all other variables are held constant (the ceteris paribus assumption).Quick Quiz 8.7
Why are all variables other than the price held constant?The nonprice determinants of supply are often called “supply shifters” because a change in any one of them results in a shift in the entire supply curve (a change in supply). However, if only the price of a good changes, the result is a movement along the existing supply curve, or a change in quantity supplied.
eBook - PDFMacroeconomics
A Contemporary Introduction
- William A. McEachern(Author)
- 2016(Publication Date)
- Cengage Learning EMEA(Publisher)
Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Chapter 4 Demand, Supply, and Markets 77 4-4e Number of Producers in the Market Because market supply sums the amounts supplied at each price by all producers in that market, market supply depends on the number of producers in that market. If that number increases, the supply will increase, shifting the supply curve to the right. If the number of producers decreases, supply will decrease, shifting the supply curve to the left. As an example of increased supply, the number of gourmet coffee bars has more than quadrupled in the United States since 1990 (think Starbucks), shifting the supply curve of gourmet coffee to the right. Finally, note again the distinction between a movement along a supply curve and a shift of a supply curve. A change in price, other things constant, causes a movement along a supply curve, changing the quantity supplied. A change in one of the determinants of supply other than price causes a shift of a supply curve, changing supply. You are now ready to bring demand and supply together. movement along a supply curve Change in quantity supplied resulting from a change in the price of the good, other things constant shift of a supply curve Movement of a supply curve left or right resulting from a change in one of the determinants of supply other than the price of the good C H E C K P O I N T Identify five changes that could shift a market supply curve to the right. 4-5 Demand and Supply Create a Market Demanders and suppliers have different views of price. Demanders pay the price and suppliers receive it. Thus, a higher price is bad news for consumers but good news for producers. As the price rises, consumers reduce their quantity demanded along the demand curve and producers increase their quantity supplied along the supply curve.
eBook - PDFMicroeconomics
A Contemporary Introduction
- William A. McEachern(Author)
- 2016(Publication Date)
- Cengage Learning EMEA(Publisher)
Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Chapter 4 Demand, Supply, and Markets 77 4-4e Number of Producers in the Market Because market supply sums the amounts supplied at each price by all producers in that market, market supply depends on the number of producers in that market. If that number increases, the supply will increase, shifting the supply curve to the right. If the number of producers decreases, supply will decrease, shifting the supply curve to the left. As an example of increased supply, the number of gourmet coffee bars has more than quadrupled in the United States since 1990 (think Starbucks), shifting the supply curve of gourmet coffee to the right. Finally, note again the distinction between a movement along a supply curve and a shift of a supply curve . A change in price, other things constant, causes a movement along a supply curve, changing the quantity supplied. A change in one of the determinants of supply other than price causes a shift of a supply curve, changing supply. You are now ready to bring demand and supply together. movement along a supply curve Change in quantity supplied resulting from a change in the price of the good, other things constant shift of a supply curve Movement of a supply curve left or right resulting from a change in one of the determinants of supply other than the price of the good C H E C K P O I N T Identify five changes that could shift a market supply curve to the right. 4-5 Demand and Supply Create a Market Demanders and suppliers have different views of price. Demanders pay the price and suppliers receive it. Thus, a higher price is bad news for consumers but good news for producers. As the price rises, consumers reduce their quantity demanded along the demand curve and producers increase their quantity supplied along the supply curve.
eBook - PDFEconomics
Theory and Practice
- Patrick J. Welch, Gerry F. Welch(Authors)
- 2016(Publication Date)
- Wiley(Publisher)
Sellers could have decreased the supply because of increased wage, equipment, or liability insurance costs. In summary, an increase in supply means that a larger quantity of a product is made available for sale at each price, causing the supply curve to shift to the right. A decrease in supply means that a smaller quantity is made available for sale at each price, causing the supply curve to shift to the left. Application 3.2, “Fads: Some In, Some Out,” shows how nonprice factors influence the demand and supply of some items. Changes in Quantity Demanded or Supplied and Changes in Demand or Supply: A Crucial Distinction Be warned: We must maintain clear distinctions between changes in quantity demanded and quantity supplied and changes in demand and supply. Although the terms are similar, they refer to completely different concepts. Changes in quantity demanded and quantity supplied arise only from changes in a product’s price. Quantity is a variable tied to price. We illustrate the responses to price changes by movements along fixed demand or supply curves from one price– quantity combination to another. For example, the movement along the demand curve in Figure 3.7a from $20 and 100 units to $10 and 150 units illustrates an increase in quantity demanded caused by a decrease in price. The movement along the supply Decrease in Supply A change in a nonprice influence on supply causes less of a product to be supplied at each price; the supply curve shifts to the left. 68 Chapter 3 Demand, Supply, and Price Determination FIGURE 3.7 Changes in Quantity Demanded and Quantity Supplied versus Changes in Demand and Supply Price a. Increase in Quantity Demanded Price b. Decrease in Quantity Supplied Changes in Quantity Demanded and Quantity Supplied 50 0 Quantity 100 150 D S 200 50 0 Quantity 100 150 200 50 0 Quantity Price 100 150 S1 S1 S2 S2 D1 D2 200 c. Increase in Demand 50 0 Quantity Price 100 150 200 d.
eBook - ePubThe Industrial System (Routledge Revivals)
An Inquiry into Earned and Unearned Income
- J. Hobson(Author)
- 2013(Publication Date)
- Taylor & Francis(Publisher)
in the amount of money consumers are willing and able to pay for a supply of goods at the current price, will, through causing a larger or a smaller supply to be produced, alter the methods of production, the positive and relative amounts of the various factors of production, and the prices that are paid per unit for their use, so raising and lowering the margins of employment, extensive and intensive, of each factor. Still more important are the influences which the rise or fall of demand prices for staple materials of manufacture exert upon the structure of whole groups of trades, and so upon the supply prices of the goods they make. The rise of demand prices for such articles as copper, rubber, oil, paper, leather, due to new or increased demands for electric apparatus, motors, cheap literature, &c., have altered the economic and even the political administration of whole provinces. § 6.—The elasticity of supply, i.e. the response which expenses of production make to a rise or a fall of demand at previous prices, is much less calculable than the elasticity of demand. For, whereas the latter commonly depends upon the gradual action of large bodies of consumers altering their habits of consumption, the former is usually achieved by quick changes in methods of production spreading rapidly over whole trades of producers. Production is normally less conservative than consumption, and is more alert to seize and adopt new economies. For though habits of industry make for themselves deep grooves, and labour, capital, and ability, being specialised in certain methods, resist innovations which, however beneficial in the long run, involve present trouble and loss, competition forces reforms
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