Amy and class, a change in supply Is a shift in the entire supply curve either t

Question

Amy and class, a change in supply Is a shift in the entire supply curve either to the left (a decrease in supply) or to the right (an increase in supply). A change In supply therefore, is a change in all points along the supply schedule or curve, i.e., a curve shift This should not be confused with a change in quantity supplied which is caused by a change in price which is in a movement from one point to another point on the supply curve. What are some events that can make shifts in the supply curve occur? Give examples.

Explanation / Answer

There is difference between change in supply and change in quantity supplied. When supply of commodity changes due to change in factors other than price like price of related goods, number of firms, price of factors of production, change in technology, expected future price, government policy, etc., then supply curve shifts. On the other hand, when supply of commodity changes due to change in the price of commodity then, it leads to movement in the supply curve.

Reasons for shift of supply curve:

1. Price of factors of production - Supply of commodity is affected by the price of factors used for the production of the commodity. If the factor price decreases, cost of production also reduces and causes rightward shift of supply curve and vice-versa.

2. Change in technology - Improvement in technique of production reduces cost of production and shift the supply curve rightwards and vice-versa.

3. Expected future price - If producers expect that price of commodity will increase in near future then firms decreases its current supply and it will lead to leftward shift of supply curve.

4. Government policy - Taxation and subsidy policy of the government affects market supply of the commodity. Increase in taxation tends to reduce supply and shifts the supply curve leftwards. On the other hand, subsidies tend to increase supply of the commodity.

5. Number of firms - Increase in the number of firms in the market increases the supply of commodity and causes rightward shift of supply curve and vice-versa.

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