Supply Shift

Definition

A supply shift refers to a change in the supply of a good or service that is not caused by a change in the good's own price. This shift in the supply curve can be caused by changes in factors that influence the willingness and ability of producers to offer a product for sale, leading to a new equilibrium price and quantity in the market.

5 Must Know Facts For Your Next Test

1. A supply shift can be either an increase or a decrease in the supply of a good, leading to a change in the equilibrium price and quantity.
2. Factors that can cause a supply shift include changes in the prices of inputs, changes in technology, changes in the number of sellers, and changes in government policies.
3. An increase in supply will result in a rightward shift of the supply curve, leading to a lower equilibrium price and a higher equilibrium quantity.
4. A decrease in supply will result in a leftward shift of the supply curve, leading to a higher equilibrium price and a lower equilibrium quantity.
5. Understanding supply shifts is crucial in analyzing changes in market equilibrium and predicting the effects of various economic factors on the supply and demand for a good or service.

Review Questions

• Explain how a change in the price of an input used in production can lead to a supply shift.
  • If the price of an input used in the production of a good increases, the cost of production for the producers will rise. This will cause the supply curve to shift leftward, as producers are willing and able to supply less of the good at each price point. The result is a higher equilibrium price and a lower equilibrium quantity in the market.
• Describe the process of how a supply shift affects the equilibrium price and quantity in a market.
  • When a supply shift occurs, the supply curve will either shift to the right (increase in supply) or to the left (decrease in supply). This change in the supply curve will lead to a new market equilibrium, where the quantity demanded is equal to the new quantity supplied. If supply increases, the equilibrium price will decrease, and the equilibrium quantity will increase. Conversely, if supply decreases, the equilibrium price will increase, and the equilibrium quantity will decrease.
• Evaluate the potential impact of a technological innovation that improves the efficiency of production on the supply of a good.
  • A technological innovation that improves the efficiency of production would lead to a decrease in the cost of producing the good. This would result in a rightward shift of the supply curve, as producers are now willing and able to supply more of the good at each price point. The new equilibrium would feature a lower equilibrium price and a higher equilibrium quantity. This increase in supply due to technological progress is an important driver of economic growth, as it allows for greater production and consumption of goods and services.

Related terms

Supply Curve: A graphical representation of the relationship between the price of a good and the quantity supplied of that good, holding all other factors constant.

Equilibrium Price: The price at which the quantity demanded is equal to the quantity supplied in a market, resulting in a balance between buyers and sellers.

Equilibrium Quantity: The quantity at which the quantity demanded is equal to the quantity supplied in a market, representing the market clearing level.