Supply Curve Shifters
Introduction
- The supply curve shows how price has an impact on quantity supplied, other things being equal.
- "other things" are considered as non-price determinants of supply.
- Changes in them make the S curve shift.
Supply Curve Shifters: Input Prices
- Examples of input prices such as prices of raw materials and wages.
- A decrease of input prices makes production more profitable at each output price,
hence, firms supply a larger quantity at each price, and the S curve shifts to the right.
Suppose the price of water falls. So, at each price, the quantity of roses supplied will increase for example by 10.
Supply Curve Shifters: Technology
- Technology can help to determine the quantity of inputs needed to produce a unit of output.
- Hence, a cost-saving technological enhancement has the same effect as a fall in input prices, which will shift the S curve to the right.
Supply Curve Shifters: Number of Sellers
An increase in the number of sellers increases the quantity supplied at each price, and
therefore creates a shift to the right on the S curve.
Supply Curve Shifters: Expectations
Example
- A high probability of a war in the middle east leads to expectations to higher oil prices.
- Subsequently, owners of oilfields in North America and elsewhere reduce supply, save some inventory to sell later at higher price.
- This event makes the S curve to shift left.
Exercise
Exercise on Supply Curve
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Solution to the Exercise on Supply Curve
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Date of last modification: 2023