What happens if the supply curve shifts to the right

The shift to the right shows that, when supply increases, producers produce and sell a larger quantity at each price. The downward shift represents the fact that supply often increases when the costs of production decrease, so producers don't need to get as high of a price as before in order to supply a given quantity of output. Note that the horizontal and vertical shifts of a supply curve are generally not of the same magnitude. Shifts of the supply curve need not be parallel, but it's helpful and accurate enough for most purposes to generally think of them that way for the sake of simplicity.

In contrast, a decrease in supply can be thought of either as a shift to the left of the supply curve or as an upward shift of the supply curve. The shift to the left shows that, when supply decreases, firms produce and sell a smaller quantity at each price. The upward shift represents the fact that supply often decreases when the costs of production increase, so producers need to get a higher price than before in order to supply a given quantity of output.

Again, note that the horizontal and vertical shifts of a supply curve are generally not of the same magnitude. In general, it's helpful to think about decreases in supply as shifts to the left of the supply curve i. This will be the case regardless of whether you're looking at a demand curve or a supply curve. Since there are a number of factors other than price that affect the supply of an item, it's helpful to think about how they relate to shifts of the supply curve :. Actively scan device characteristics for identification.

Use precise geolocation data. Select personalised content. Create a personalised content profile. Measure ad performance. If the supply curve shifts to the right, this is an increase in supply ; more is provided for sale at each price. If the supply curve moves inwards, there is a decrease in supply meaning that less will be supplied at each price.

Make sure that you understand the key factors that can bring about a shift in the supply curve for a product in a market. Factors that will cause an outward shift of a market supply curve i. Company Reg no: VAT reg no The shift of supply to the right, from S 0 to S 2 , means that at all prices, the quantity supplied has increased.

In the example above, we saw that changes in the prices of inputs in the production process will affect the cost of production and thus the supply.

Several other things affect the cost of production, too, such as changes in weather or other natural conditions, new technologies for production, and some government policies.

Changes in weather and climate will affect the cost of production for many agricultural products. A drought decreases the supply of agricultural products, which means that at any given price, a lower quantity will be supplied. Conversely, especially good weather would shift the supply curve to the right.

When a firm discovers a new technology that allows the firm to produce at a lower cost, the supply curve will shift to the right, as well. For instance, in the s a major scientific effort nicknamed the Green Revolution focused on breeding improved seeds for basic crops like wheat and rice. By the early s, more than two-thirds of the wheat and rice in low-income countries around the world used these Green Revolution seeds—and the harvest was twice as high per acre.

A technological improvement that reduces costs of production will shift supply to the right, so that a greater quantity will be produced at any given price.

Government policies can affect the cost of production and the supply curve through taxes, regulations, and subsidies. For example, the U. Businesses treat taxes as costs. Higher costs decrease supply for the reasons we discussed above. Other examples of policy that can affect cost are the wide array of government regulations that require firms to spend money to provide a cleaner environment or a safer workplace.

Complying with regulations increases costs. A government subsidy, on the other hand, is the opposite of a tax. Government subsidies reduce the cost of production and increase supply at every given price, shifting supply to the right. The following Work It Out feature shows how this shift happens. We know that a supply curve shows the minimum price a firm will accept to produce a given quantity of output. What happens to the supply curve when the cost of production goes up?

Following is an example of a shift in supply due to a production cost increase. Draw a graph of a supply curve for pizza. Pick a quantity like Q 0.

If you draw a vertical line up from Q 0 to the supply curve, you will see the price the firm chooses. Why did the firm choose that price and not some other? One way to think about this is that the price is composed of two parts. The first part is the cost of producing pizzas at the margin; in this case, the cost of producing the pizza, including cost of ingredients e.

If you add these two parts together, you get the price the firm wishes to charge. Now, suppose that the cost of production increases. Step 4. Shift the supply curve through this point. You will see that an increase in cost causes an upward or a leftward shift of the supply curve so that at any price, the quantities supplied will be smaller, as Figure illustrates.

Summing Up Factors That Change Supply Changes in the cost of inputs, natural disasters, new technologies, and the impact of government decisions all affect the cost of production. In turn, these factors affect how much firms are willing to supply at any given price. Figure summarizes factors that change the supply of goods and services. Notice that a change in the price of the product itself is not among the factors that shift the supply curve. Although a change in price of a good or service typically causes a change in quantity supplied or a movement along the supply curve for that specific good or service, it does not cause the supply curve itself to shift.

Because demand and supply curves appear on a two-dimensional diagram with only price and quantity on the axes, an unwary visitor to the land of economics might be fooled into believing that economics is about only four topics: demand, supply, price, and quantity. We include factors other than price that affect demand and supply are included by using shifts in the demand or the supply curve.

In this way, the two-dimensional demand and supply model becomes a powerful tool for analyzing a wide range of economic circumstances. Factors that can shift the demand curve for goods and services, causing a different quantity to be demanded at any given price, include changes in tastes, population, income, prices of substitute or complement goods, and expectations about future conditions and prices.

Factors that can shift the supply curve for goods and services, causing a different quantity to be supplied at any given price, include input prices, natural conditions, changes in technology, and government taxes, regulations, or subsidies. Why do economists use the ceteris paribus assumption? To make it easier to analyze complex problems. Ceteris paribus allows you to look at the effect of one factor at a time on what it is you are trying to analyze.

When you have analyzed all the factors individually, you add the results together to get the final answer. In an analysis of the market for paint, an economist discovers the facts listed below.

State whether each of these changes will affect supply or demand, and in what direction. Many changes are affecting the market for oil. Predict how each of the following events will affect the equilibrium price and quantity in the market for oil. In each case, state how the event will affect the supply and demand diagram. Create a sketch of the diagram if necessary. When analyzing a market, how do economists deal with the problem that many factors that affect the market are changing at the same time?

Name some factors that can cause a shift in the demand curve in markets for goods and services. Name some factors that can cause a shift in the supply curve in markets for goods and services.

Consider the demand for hamburgers. If the price of a substitute good for example, hot dogs increases and the price of a complement good for example, hamburger buns increases, can you tell for sure what will happen to the demand for hamburgers?

Why or why not? Illustrate your answer with a graph. Justify your answer. We know that a change in the price of a product causes a movement along the demand curve. Suppose consumers believe that prices will be rising in the future. How will that affect demand for the product in the present? Can you show this graphically? Suppose there is a soda tax to curb obesity. What should a reduction in the soda tax do to the supply of sodas and to the equilibrium price and quantity? Hint : Assume that the soda tax is collected from the sellers.

Figure shows information on the demand and supply for bicycles, where the quantities of bicycles are measured in thousands. The computer market in recent years has seen many more computers sell at much lower prices. What shift in demand or supply is most likely to explain this outcome? Sketch a demand and supply diagram and explain your reasoning for each. Landsburg, Steven E.

New York: The Free Press. National Chicken Council. Wessel, David. May 27, , p. Skip to content Demand and Supply. Learning Objectives By the end of this section, you will be able to: Identify factors that affect demand Graph demand curves and demand shifts Identify factors that affect supply Graph supply curves and supply shifts.

What Factors Affect Demand? The Ceteris Paribus Assumption A demand curve or a supply curve is a relationship between two, and only two, variables: quantity on the horizontal axis and price on the vertical axis.

When does ceteris paribus apply? How Does Income Affect Demand? Shifts in Demand: A Car Example. Increased demand means that at every given price, the quantity demanded is higher, so that the demand curve shifts to the right from D 0 to D 1.

Decreased demand means that at every given price, the quantity demanded is lower, so that the demand curve shifts to the left from D 0 to D 2.

Changing Tastes or Preferences From to , the per-person consumption of chicken by Americans rose from 48 pounds per year to 85 pounds per year, and consumption of beef fell from 77 pounds per year to 54 pounds per year, according to the U.

Changes in the Composition of the Population The proportion of elderly citizens in the United States population is rising. Changes in Expectations about Future Prices or Other Factors that Affect Demand While it is clear that the price of a good affects the quantity demanded, it is also true that expectations about the future price or expectations about tastes and preferences, income, and so on can affect demand.

Shift in Demand. We can use the demand curve to identify how much consumers would buy at any given price. Demand Curve with Income Increase. With an increase in income, consumers will purchase larger quantities, pushing demand to the right.

Demand Curve Shifted Right. With an increase in income, consumers will purchase larger quantities, pushing demand to the right, and causing the demand curve to shift right.

Factors That Shift Demand Curves. How Production Costs Affect Supply A supply curve shows how quantity supplied will change as the price rises and falls, assuming ceteris paribus so that no other economically relevant factors are changing. Shifts in Supply: A Car Example. Decreased supply means that at every given price, the quantity supplied is lower, so that the supply curve shifts to the left, from S 0 to S 1.