Shifts in the Supply Curve
The supply curve shifts when there is a change in any variable not represented on the graph's axes. This means any change apart from the price and the quantity supplied that alters the amount suppliers want and can offer at each price, such as changes in production costs, wages, taxes, regulations, or technological improvements.
Graph of Supply Curve Shifts
When graphing the supply curve, it is done under the assumption that all other factors besides price that can affect the quantity supplied remain constant. However, changes in those factors can still be represented in the graph through shifts in the supply curve. In the following graph, curve S1 is the original supply curve, curve S2 is a leftward shift, and curve S3 is a rightward shift.
Note that in this example, at a price of 80, on the supply curve S1, the quantity supplied is 500. When there is a leftward shift of the supply curve to S2, now at the same price of 80, producers are only willing to offer 300. Conversely, if the supply shifts to the right to curve S3, the quantity suppliers are willing to offer at the same price of 80 increases from 500 to 700.
Alternatively to saying the curve shifts to the right or left, it is also possible to say it shifts up or down. Note that for the market to offer a quantity of 100, the price must be 40. However, when the supply curve shifts down, the price for the market to offer 100 units reduces to 20. Consequently, when the supply curve shifts up, the same quantity is offered at a higher price, and when it shifts down, the same quantity is offered at a lower price.
Factors that Shift the Supply Curve
Any factor that alters the quantity producers want to offer at each given price shifts the supply curve. Consequently, there are many and varied reasons why the supply curve might shift, but among the most important are:
The price of inputs used to produce, such as wages and raw materials. When the price of inputs increases, producing becomes more expensive, and for some companies, it might even become unprofitable, potentially leading to closures. Therefore, the supply of a good moves in the opposite direction to the price of inputs. When input prices increase, the supply curve shifts to the left, and when input prices decrease, it shifts to the right.
The technology used to transform inputs is also determinant. Technological improvements make production more efficient and cheaper. Therefore, at each given price, companies can offer more, and the supply curve shifts to the right. The number of sellers in a market is also crucial. The greater the number of sellers, the greater the supply at each price. Future expectations also affect supply. If producers expect higher prices in the future, they may reduce their present supply, shifting the supply curve to the left.
In conclusion, any variable that changes, is relevant, and affects the quantity supplied, which is not on the axes (i.e., different from price and quantity) and causes producers to want and be able to offer a different quantity at each given price, will shift the supply curve.