Shifts in Supply

Shifts in Supply:

As we know, the supply curve exhibits the relationship among the price and quantity supplied maintaining the ‘other things’ constant. The ‘other things’ that affect supply comprise number of sellers in the market, factor prices, and so on. Such factors affect quantity supplied independently of price.

Price is the main determinant of supply. Though, a fall in the price of factor of production (i.e., land and labor) will decrease the cost of production. This in return will encourage the organizations to supply more. This will cause the shift of supply curve from its initial level of S to the new level of S1. On other hand, an augment in factor price will raise the cost of production and the supply curve will shift from S to S2.

In such two situations S1 and S2, equilibrium point too moves from E to E1 or E2 correspondingly.

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Figure: Shifts in Supply Curve

Just similar to demand, the distinction among the change in quantity supplied and change in supply requires to be noted. The change in quantity supplied takes place only due to the change in price while the change in ‘determinants’ of supply like factor price will shift the whole supply curve and a new equilibrium will be attained. These shifts will occur independently of price.

 

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