What Causes a Shift in the Supply Curve?

According to Net MBA, the quantity supplied is determined by the price of the commodity in the market. The supply curve is graphically represented with the quantity supplied illustrated on the horizontal axis, while price is recorded on the vertical axis. According to the law of supply, when prices are higher, the amount supplied increases if all other factors are constant. Apart from the prices of commodities, other factors cause a shift in the supply curve.

Other Commodity Prices

The quantity supplied can reduce if there is an increase in the price of another commodity, because more resources will be set aside to produce bigger quantities of the commodity with a higher profit margin. Producers also increase the amount supplied for the commodity with high prices in order to make more profit.

Cost of Production

Quantity supplied can increase as a result of a reduced cost in production of a commodity. This increase will result in the downward shift of the supply curve toward the right. Increased cost of production limits the quantity supplied by producers to the market at any price, making the supply curve to move toward the left.

Taxes and Subsidies

The government plays a vital role in determining the quantity supplied in the market. If the government levies taxes on producers, the production cost increases, leading to a drop in supply. Higher taxation increases the price of a commodity in the market, resulting in consumers buying less, in turn lowering the supply. Government subsidies reduce the cost of production, thus firms are able to make more commodities for the market. The supply curve shifts to the right, depending on the value of the subsidy.

Number of Suppliers

The overall quantity of a commodity supplied is determined by the number of producers in a market. The entry of new firms increases the quantity supplied, leading to a fall in market prices. If suppliers deliberately withhold supplies to the market using quotas, prices go up. Having many firms in the market increases the amount supplied and expands customers’ choices.

Technology

Technology advances in industries can rapidly increase production and improve efficiency. Technology lowers the cost of production because the amount of time spent producing commodities can be reduced. Rapid production also lowers consumer prices, resulting in an increase in supply.

References

About the Author

Jane Doucet has been writing professionally since 2003. Her articles have been published with the "Canadian Living," "Gardening Life," "Homemakers," "Reader's Digest" and "Halifax Magazine," among other publications. Doucet holds a Master of Arts in journalism from University of King's College, Halifax.