key term - Shifts in Supply Curve

Definition

A shift in the supply curve represents a change in the supply of a good or service, independent of a change in its price. This occurs when factors other than the good's own price affect the willingness and ability of producers to supply the product to the market.

5 Must Know Facts For Your Next Test

1. A rightward shift in the supply curve indicates an increase in supply, while a leftward shift indicates a decrease in supply.
2. Shifts in supply can be caused by changes in the prices of inputs used to produce the good, improvements in production technology, or government policies like subsidies or taxes.
3. When the supply curve shifts, the equilibrium price and quantity will change, following the four-step process to determine the new equilibrium.
4. The magnitude of the shift in the supply curve determines the extent of the change in the equilibrium price and quantity.
5. Shifts in supply are distinct from movements along the supply curve, which are caused by changes in the good's own price.

Review Questions

• Explain the four-step process for determining the new equilibrium price and quantity when there is a shift in the supply curve.
  • The four-step process for determining the new equilibrium price and quantity when there is a shift in the supply curve is as follows: 1) Identify the change in supply (increase or decrease) and the factor causing the shift. 2) Determine the direction of the supply curve shift (leftward or rightward). 3) Use the supply and demand model to find the new equilibrium price and quantity. 4) Compare the new equilibrium to the original to identify the changes in price and quantity.
• Describe how different factors can cause a shift in the supply curve and the resulting impact on the equilibrium price and quantity.
  • Factors that can cause a shift in the supply curve include changes in input prices, advancements in production technology, government policies like subsidies or taxes, and the number of sellers in the market. For example, if the price of a key input increases, the supply curve will shift leftward, leading to a higher equilibrium price and lower equilibrium quantity. Conversely, if a new technology improves production efficiency, the supply curve will shift rightward, resulting in a lower equilibrium price and higher equilibrium quantity.
• Analyze how the magnitude of the shift in the supply curve affects the changes in the equilibrium price and quantity.
  • The magnitude of the shift in the supply curve determines the extent of the changes in the equilibrium price and quantity. A larger rightward shift in the supply curve will result in a greater decrease in the equilibrium price and a larger increase in the equilibrium quantity. Conversely, a larger leftward shift in the supply curve will lead to a more significant increase in the equilibrium price and a larger decrease in the equilibrium quantity. The size of the shift depends on the magnitude of the change in the underlying factors affecting supply, such as the degree of the input price change or the impact of the new production technology.

Related terms

Supply Curve:

A graphical representation of the relationship between the price of a good and the quantity supplied of that good, ceteris paribus.

Equilibrium Price and Quantity: The price and quantity where the supply and demand curves intersect, representing the market clearing point.

Factors Affecting Supply: Variables other than a good's own price that can cause a shift in the supply curve, such as input prices, technology, government policies, and the number of sellers.