Economics / Unit 4: Supply and Market Equilibrium
4.2 Changes in Supply and Its Determinants
Notes
- A change in quantity supplied is caused only by a change in the good's own price: a movement along the supply curve.
- A change in supply is caused by other factors and shifts the whole curve. An increase shifts it right (more offered at every price); a decrease shifts it left.
| Determinant | Example that increases supply (shift right) |
|---|---|
| Input costs | the price of flour falls for a bakery |
| Technology | a faster machine is invented |
| Number of sellers | new firms enter the market |
| Government subsidies | the government pays farmers per bushel |
| Taxes and regulations | a tax on producers is removed |
| Expectations | producers expect lower prices later, so they sell more now |
| Natural conditions | good weather produces a large harvest |
- The reverse of each (higher input costs, new taxes, a drought) decreases supply, shifting the curve left.
Practice
A drought destroys much of the corn crop. The supply curve for corn:
Bad weather reduces how much farmers can offer at every price.
A new robot cuts the cost of assembling bicycles. What happens to the supply of bicycles?
Better technology lowers costs, so firms offer more at every price.
Which event causes a movement along the supply curve for t-shirts rather than a shift?
Only a change in the good's own price moves producers along the curve.
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