What causes a shift in supply?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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There are many factors that can shift a supply curve.  We call these nonprice determinants of supply.  Among them are:

  • Number of sellers.  All other things being equal, if more people start to make a given product, the supply will rise.
  • Technology.  Improvements in technology tend to increase supply.  New technologies make it possible to make goods more cheaply and easily.  This means that firms can make more of the goods and supply rises.
  • Resource prices.  Everything is made using some combination of land, labor, and capital.  If the price of any of these changes, supply will change.  Increases in resource prices will reduce supply while drops in the prices will increase supply.
  • Expectations of the sellers.  Let’s say that you are making a product and you expect that the price you can sell it for will go up dramatically in a month or two.  You would reduce supply now so that you would be making more of the product later when you can charge more for it.
  • Prices of other goods.  Let’s say that you have land on which you could plant corn or soy beans.  If the price of soy beans goes up, you will likely want to use your land to plant those.  The supply of corn would then go down.

 

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