Supply, Demand and Equilibrium
The Effects of Changes of Non-Price Factors - Supply
There are four main non-price factors that impact supply. Changes in these non-price factors cause a shift in the entire supply curve to the left or to the right. An increase in supply will shift the curve to the right and a decrease in supply will shift the curve to the left.
When constructing diagrams, use the checklist below to ensure that you include all the necessary components of an economic model. Furthermore, when describing your models in exams, you must outline the following:
If supply is increasing or decreasing.
The non-price factor that has caused this change.
The direction that the curve will shift. (left or right)
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Explanation and Tips
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Example One Explanation:
The factor that influenced the change in supply can be identified as the change in the ‘Cost of Production.’ As shown on the model, the increase in cost of producing the same number of goods has caused an increase in price and, therefore a reduced quantity supplied. As the quantity supplied decreases, the entire supply curve shifts to the left.
When trying to identify if a shift is on the demand or the supply side, look carefully at the questions; is it talking about producers or consumers? A change in production will always refer to the supply side of the model.
Explanation and Tips
Example Two Explanation:
The factor that influenced the change in supply can be identified as the change in the ‘expectations of future prices.’ As shown on the model, the producers expectations to receive more income from carrot sales causes an increase in supply. This causes an increase in supply, shown by shift in the entire curve to the right. This decreases the price of the good and, in turn, increases the quantity supplied.
Supply shifts can be difficult at first as it is easy to think or an increase in supply to move upwards, however, this is not the case as the correct shift to show a decrease in demand is ‘downwards’ or the right. If this is confusing, always think of supply as a horizontal shift to the left or the right as the rule is the same as demand shifts. A shift to the left shows a decrease in supply and demand and a shift to the right shows an increase in supply and demand.