Change in quantity supplied & Change in supply
Changes in quantity supplied and movement along the supply curve are the same. Changes in supply and shift in supply are the same. These concepts are about the supply curve. The change in quantity supplied is shown on the same supply curve. The change in supply means shifting the supply curve. Let’s learn them.
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Movement along the supply curve
Movement along the supply curve or change in quantity supplied is caused by a change in the price of the commodity keeping other things constant. It is of 2 types:
1. Extension or Expansion of Supply Curve
When the quantity supplied increases with the increase in the price of the commodity keeping other things constant is called the expansion of the supply curve.
2. Contraction of Supply Curve
When the quantity supplied decreases with the decrease in the price of the commodity keeping other things constant is called the contraction of the supply curve.
Shift in Supply
Shift in supply or change in supply shows the situation of increase or decrease in the supply when the price of the commodity remains constant but other factors affecting the supply curve changes. It is caused by the following:
1. Change in the price of related goods
In the case of substitute goods, when the price of 1 substitute good rises, the supply of its substitute good falls.
For example, with the decrease in the price of tea, the supply of coffee increase. This happens because the quantity supplied of tea will fall, seller gets less revenue from the sale of tea, so seller will start increasing the supply of coffee and the supply curve of coffee will shift to the right. As shown below:
In the case of complementary goods, when the price of 1 complementary good rises, the supply of its complementary goods will increase.
For example, with the increase in the price of ink, then the supply of pens will increase. This happens because the supplier knows that the ink will be used in that pen, so it’s beneficial to increase the supply of pen.
With the improvement in technology, the supply curve will shift to the right and vice versa.
This happens, because with the improvement in the technology the supplier will be able to produce more and the supply curve will increase.
3. Cost of Production
If the cost of production or the input price increases, the supply curve will shift to the left and vice versa.
4. Tax Policy
If the government reduced the tax rates or increases the subsidies, this will help the supplier and the supply curve will shift to the right and vice versa.
Types of Shift in Supply Curve
1. Increase or Rightward shift in Supply Curve
When the supply of a commodity increases due to favorable changes in the factors other than the price, it is called an increase in the supply curve.
The supply curve shifts to the right due to the following reasons:
- Fall in the price of the substitute goods
- The rise in the price of complementary goods
- Fall in the input price
- Improvement in the technology
- The decrease in the tax rate
- Increase in the subsidies
All of these cases will cause a rightward shift of the supply curve.
2. Decrease or the leftward shift in the supply curve
When the supply of a commodity decreases due to unfavorable changes in factors other than the price it is called a decrease in the supply curve.
The supply curve will shift to the left due to the following cases:
- The rise in the price of the substitute goods
- The fall in the price of complementary goods
- The rise in the input price
- Degradation in technology
- The increase in the tax rate
- The decrease in the subsidies
All of these cases will cause a leftward shift of the supply curve.
Thank You for reading.
You can read the following related posts:
- The law of supply and its determinants
- The supply curve
- What is production function?
- Terms related to production concept
- Law of diminishing returns to a factor
- Total cost, Total variable cost and Total fixed cost
- The relation between TC, TVC and TFC
- Average total cost
- The demand curve
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