What variables can shift the supply curve?

Supply refers to the quantity of a good that the producer plans to sell in the market. Supply will be determined by factors such as price, the number of suppliers, the state of technology, government subsidies, weather conditions and the availability of workers to produce the good.

Movement along the supply curve

• As price increases firms have an incentive to supply more because they get extra revenue (income) from selling the goods.
• If price changes, there is a movement along the supply curve, e.g. a higher price causes a higher amount to be supplied.

An increase in the price from 80 to 116 causes an increase in quantity supplied from 60 to 70.

Shifts in the Supply curve

This occurs when firms supply more goods – even at the same price. For example, a new machine which enables more of the good to be produced for the same cost.

Factors affecting the supply curve

1. A decrease in costs of production. This means business can supply more at each price. Lower costs could be due to lower wages, lower raw material costs
2. More firms. An increase in the number of producers will cause an increase in supply.
3. Investment in capacity. Expansion in the capacity of existing firms, e.g. building a new factory
4. The profitability of alternative products. If a farmer sees the price of biofeuls increase, he may switch to growing crops for biofuels on all his fields and this will lead to a fall in the supply of food, such as wheat.
5. Related supply. If there is an increase in the supply of beef (from cows) then there will also be an increase in the supply of leather.
6. Weather. Climatic conditions are very important for agricultural products
7. Productivity of workers. If workers become more motivated and work hard, then there will be a significant increase in output and supply.
8. Technological improvements. Improvements in technology, e.g. computers or automation, reducing firms costs.
9. Lower taxes. Lower direct taxes (e.g. tobacco tax, VAT) reduce the cost of goods.
10. Government subsidies. Increase in government subsidies will also reduce the cost of goods, e.g. train subsidies reduce the price of train tickets.
11. Objectives of firms. If firms are profit maximisers and collude with other firms, we may see a fall in supply as they try to maximise profits. However, if they switch to targetting sales or revenue maximisation, then we will see an increase in supply.

Shift in supply to the left

In this case, there is a fall in supply. The supply curve shifts to the left. This causes a higher price. The supply can shift to the left because

• Fewer firms in the market
• Bad weather (agriculture)
• Higher taxes
• Decline in productivity (workers work less hard.)

Factors that cause a shift in supply to the right

1. More firms entering the market
2. Improved technology, reducing the cost of production
3. Increased size of output leading to economies of scale and effective mass production.
4. Lower tax rates
5. Higher government subsidies

Definition: joint supply

Joint supply occurs when two goods are supplied together. E.g. If you produce beef you will get leather as a side effect.

Factors affecting the supply of labour

• The supply of labour is quite similar to the supply of goods. The supply of labour will depend upon factors such as
• Quantity of skilled labour. The supply of highly qualified jobs like lawyers is fairly limited because of the qualifications required.
• The desirability of the job. If a job is concerned enjoyable, more people may wish to do it.
• The quantity of immigration. An unattractive job like fruit picking may depend on seasonal workers from abroad. If immigration is cut, this supply of seasonal labour may fall.
• Demographic factors. An ageing population and a falling birth rate will lead to a decline in the working-age population.

Supply side shocks and inflation

A supply-side shock is when an economy faces shortages of a good in several markets. For example, if OPEC restricts the supply of oil, this will cause rising oil prices and a consequent rise in the cost of transport. Higher oil prices typically cause the supply of many goods to become more expensive and this can feed through into higher prices and inflation.

1. Supply curve

The supply curve is a graphic representation of the correlation between the cost of a good or service and the quantity supplied for a given period. The supply curve will move upward from left to right, as explained in the law of supply: As the price of a given commodity increases, the quantity supplied increases (all else being equal). When the prices of goods and services decline, the supply of goods and services will then decrease.

2. Factors affecting supply

Supply can be influenced by a number of factors that are termed as determinants of supply. Generally, the supply of a product depends on its price and other variables such as the cost of production.

a. Price

Price can be understood as what the consumer is willing to pay to receive a good or service. This is the main factor that influences the supply of a product. In the law of supply, when the price of a product goes up, the supply of the product also increases and vice versa. This is considered as the variation in the price. However, if there is any speculation of a rise in the price of the product, it is typical that the supply in the present market would drop in order to gain more profit in the future. That also indicates that if the price is expected to decrease, the supply in the current marketplace would strongly increase.

Besides that, the price of substitutes and complementary goods could also affect the supply of a product. For example, if the price of wheat increases, the farmers would tend to grow more wheat than rice. This would potentially decrease the supply of rice in the market. Overall, price is a factor that affects a product’s supply the most.

b. Cost of production

The supply of a product and the cost of production is adversely related to each other. For companies, if the cost of production increases, the supply of products would shrink so as to save resources. For example, due to the high wages rate of labor, poor natural conditions such as crop failure as well as the increase in raw materials price, taxes, transportation cost … the cost of production is raised. In this case, managers of the company would either supply a smaller quantity of product to the market or stock the product till the market price is exceeded.

c. Technology

Shifts in the supply curve are usually the result of advances in technology that reduce the cost of production. Technology advances can improve production efficiency and therefore cut down the cost spent for production. Computers, televisions and photographic equipment are good examples of the effects of technology on the supply curve. A huge computer that used to cost several thousand dollars can now be purchased for a few hundred dollars with such improvement in storage and processor. In this case, the supply for the computer in the present day would be much higher than that of the past.

d. Governments’ policies

With the role to regulate and protect the industry, the Government has a great influence on the supply of a product. The lower the tax, the higher the supply of that product. On the other hand, if strict regulations are imposed and the excise duty is added, the product’s supply would fall off.

e. Transportation condition

The supply chain relies on the efficient management of assets and logistics to get raw materials, parts and finished products from one place to another. Transport is always a constraint to the supply of products, as the products are not available on time due to poor transport facilities.

With the lack of transportation management, raw materials could not be delivered to the manufacturer fast and in good condition. The lack of facilities would also prevent the company from distributing its product to consumers when there is a burst in demand. This would not only damage the company’s benefit but also lower the competitiveness of the company towards its competitors.

For situations like this, it is crucial for the company to manage the transportation and optimize its delivery route. By using a route optimization algorithm, Abivin vRoute provides the most optimal transportation management solution to ensure a better delivery process and guarantee on-time delivery.

What are the 6 factors that can shift the supply curve?

What are the 7 factors that can shift the supply curve?

What are 3 factors that could shift supply?

What are 4 major factors that could affect supply?