Question

What are the 4 economic events that can shift the supply curve? Give an example of for each economic situation that will shift the supply curve.

Answer 1

• A supply curve depicts how much of a good the sellers are willing to supply at any given price.
• There are various economic events or situations that will shift the supply curve. Four or them are :-

1. Changes in input prices :-

• When the cost of inputs used for the production increases, the production becomes too costly for the producers and they decrease the supply to minimise this cost. This will shift the supply curve to the left.
• On the other hand, when the cost of those inputs decreases, the production and the supply increases. This will shift the supply curve to the right.
• For example :- If the price of wheat increases, the producers of bread cut down the production and supply less as they face losses.
• But if the price of wheat decreases, production and supply of bread increases.

2. Number of sellers :-

• When there is an increase in the number of firms selling a particular good, the total supply in an economy increases and the supply curve shifts right.
• When there is only a single or very few firms selling a particular good, the total supply decreases and the supply curve shifts left.
• For example:- currently, if there is a single firm producing dolls in the market, the supply decreases and the supply curve shifts to the left. But when many other firms producing dolls enter the market, the supply increases in the Economy and the supply curve shifts to the right.

3. Technology :-

• When the technology required in the production of goods improves, the production increases which gives the producers a hope of earning more profit. This will allow them to increase the supply and the supply curve shifts to the right.
• But if the producers stick to the existing technology, there will be no change in the productivity.
• For example :- The use of highly sophisticated Baking machine's has reduced human work and has increased the supply of breads and cakes.

4. Expectations of future prices :-

• When the suppliers expect the prices to fall in future, the supply of the goods increases in the present and the supply curve shifts to the right.
• But, if they expect the prices to rise in future, than in present, they decrease the supply at present and increase the supply in future, which lead to a leftward shift in the supply curve at present.
• For example :- If the government of a country is planning to raise the prices of all the goods and services by 5% next year, the suppliers decrease the supply of their goods now and decide to supply more next year.