Question

List all the factors cause the supply curve to shift. Explain each factor. Explain what each factor is and provide a real world example of each one.

Answer 1

Factors that cause the supply curve to shifts are as follows

1) Change in cost of production

2) Natural disaster

3) New technology

4) Government policies

Change in cost of production- If the cost of production is increased, supply will become costly so supply gets reduced. The opposite will happen if the cost of production is decreased. Supply curve will shift to the right if the cost of production is decreased. Supply curve shifts to left if the cost of production is increased. For car production, if the price of steel is increased then the supply of car will be reduced.

Natural disaster- Supply will be decreased if any drought, storm etc destroyed production. Supply curve shifts to the left in this case. US heat by destructive storm and half of the production is destroyed. It will shift the supply curve to the left.

New technology- If any new technology is invented, supply is increased as for the same production less number of labor and capital is used. Supply curve shifts to the right. Apple invents a new technology which reduces its cost of production so the supply curve shifts to the right.

Government policies- Government policies like taxes, regulation, subsidies can affect the cost of production and the supply curve. For an example, if the government imposes taxes on pollution emitted from industries. It will increase the cost of production so supply will be decreased and supply curve shifts to the left.