Introduction
Before talking about the change in supply or knowing the change in supply definition, we must first know what supply is. In Economics, the Supply of a commodity refers to the amount of the commodity which is made available to consumers at a particular point in time. While, the increase and decrease of supply is known as the ‘change in supply’. But why do the changes occur? Does it effect any economic scenario?
We will know all about this in this study. Tune in and let us dive in together starting from the revision of supply.
Definition of Supply
Supply refers to a concept in Economics which means the amount of commodity that is made available to the consumers at a particular point of time. Supply has a relation with a price like demand, but unlike demand, the supply of a commodity increases when price increases, other things remaining constant. Other factors also contribute to bringing about a change in the supply of a commodity. The supply is determined by various factors like price, utility and preferences of the consumers. Now let us move on to understanding the concept of change in supply.
Change in Supply - The Definition
The change in Supply is defined as an increase or decrease in the Supply of a commodity caused by various related factors. The change in supply definition is the increase or decrease in supply owing to various factors. Change in supply may be caused by the price of related goods, tastes, income and consumer preferences. This is what causes a change in supply.
A change in supply may occur because of the introduction of new technologies, the introduction of new and efficient methods of production, and an increase in competition in the market. Graphically change in supply brings about a shift in the supply curve. This is, in brief, the change in supply definition.
What Causes Change in Supply?
Now that we know what is the change in supply, let us look at a few primary factors that cause supply to change. There is a consensus among economists that there are various primary factors that cause supply to change. These include technology, the price of raw materials, seller expectations, number of sellers in the market and prices of other commodities.
For example, when the introduction of a new technology reduces the cost of production of a commodity as per the law of supply, the output of the commodity would increase. If the overall supply of the commodity also increases in the market, the prices would fall, demands increase, and subsequently causing an increase in supply.
Increase in Supply
An increase in supply refers to the increase in supply at the same price or in other words, a rightward shift of the supply curve. Various factors cause an increase in supply. If the cost of production decreases, it becomes cheaper for the producers to produce a particular good and hence to make more profit supply increases.
Technological progress also reduces the production cost causing the supply to increase. Taxation and subsidy would also influence the supply of a good. Reduction in taxes and an increase in subsidies cause the production cost to fall and the supply to increase.
Decrease in Supply
The decrease in supply is the complete opposite situation. A decrease in supply refers to a fall in supply at the same price or the leftward shift of the supply curve. Various factors may cause a decrease in supply.
First and foremost, an increase in the production cost would make it more costly for the producers to produce, causing a decrease in supply.
When the producers refuse to adopt new technology, their cost of production increases and this causes a decrease in supply.
When taxes are increased, and subsidies reduced, it causes the supply to decrease owing to an increase in the cost of production.
When supply decreases, there is excess demand in the market, which causes an increase in prices of goods and services and an eventual fall in demand in accordance with the law of demand. The change continues until a new equilibrium is established in the market.
What are the Factors Behind it?
The Factors:
Some of the factors affecting change in supply are the prices of related products, income and spending habits of customers, and tastes and preferences of the consumers themselves.
Reasons for Change in Supply
Change in Supply can be caused due to changes in technology, machinery usage or development of better and efficient methods of production. An increase in competition in the market also affects Supply. Changes in the price of raw materials or other inputs of production affect Supply. Seller expectations also affect Supply.
The future expectation of prices also affects Supply immensely. If it is expected that prices of a commodity will fall in the future, the demand for the commodity will fall which will result in falling production and Supply of the commodity. Similarly, if the prices are expected to rise, the demand for the commodity will increase causing pressure on the Supply of the commodity in the present.
Supply Pattern Changes
Supply can increase or decrease depending on various factors discussed above. Let us understand the concepts of increase and decrease in Supply.
Changes in Supply continue till equilibrium is reached. To get more information on the changes in supply, visit Vedantu's website where you can get free study material, questions and solutions, and a lot more.
Did You Know?
Supply is very commonly associated with demand in Economics and forms a fundamental concept and principle of economics. Concepts of supply and demand in Modern Economics have been postulated by John Locke and also used by economist Adam Smith in his book 'An enquiry into the nature and causes of the wealth of nations' which was published in the year 1776.
Alfred Marshall, in 1890 popularised the use of demand and supply curve in his book 'principles of economics. The United Kingdom (then Britain) happens to be the first country that used the concepts of demand and supply as well as Economics in general.
Solved Examples
1. What is the change in supply?
Answer: Change in supply refers to an increase or decrease of supply at the same price, causing a rightward or leftward shift in the supply curve respectively.
FAQs on Supply Changes: Causes and Effects
1. What is a 'change in supply' in economics?
A 'change in supply' refers to a situation where producers are willing to offer more or less of a product for sale at every price level. This change is caused by factors other than the product's own price and is visually represented by a shift of the entire supply curve either to the right (an increase) or to the left (a decrease).
2. What are the key factors that cause a change in supply?
Several key factors can shift the supply curve. The primary causes for a change in supply include:
- Cost of Inputs: Changes in the price of raw materials, labour, or other production factors.
- Technology: Technological advancements often lower production costs and increase efficiency.
- Government Policies: The imposition of taxes increases production costs, while subsidies decrease them.
- Number of Sellers: The entry of new firms increases supply, while firms exiting the market decrease it.
- Producer Expectations: Beliefs about future price changes can influence how much is supplied today.
- Prices of Related Goods: A change in the price of a substitute or complement in production.
3. How is a change in supply represented on a graph?
A change in supply is illustrated by a shift of the entire supply curve. Specifically:
- An increase in supply is shown as a rightward shift of the supply curve. This indicates that a larger quantity is supplied at each price.
- A decrease in supply is shown as a leftward shift of the supply curve. This indicates that a smaller quantity is supplied at each price.
4. What is the effect of a decrease in supply on the market price and quantity?
When supply decreases (the curve shifts left) while demand stays the same, it creates a shortage at the original price. This excess demand puts upward pressure on the price. The market will move to a new equilibrium characterised by a higher price and a lower quantity bought and sold.
5. What is the crucial difference between a 'change in supply' and a 'change in quantity supplied'?
The distinction is fundamental in economics. A 'change in supply' is a shift of the entire supply curve, caused by a change in a non-price determinant like technology or input costs. In contrast, a 'change in quantity supplied' is a movement along a single, fixed supply curve, which is caused exclusively by a change in the commodity's own price.
6. How does a new government tax on a product affect its supply?
A new tax imposed on a product acts as an increase in the cost of production for the seller. Because it is now more expensive to produce each unit, sellers are willing to supply a smaller quantity at any given price. This leads to a decrease in supply, which is represented graphically as a leftward shift of the supply curve.
7. Why does an improvement in technology typically cause an increase in supply?
An improvement in technology increases supply primarily by boosting producer efficiency and lowering the average cost of production. New technology allows a firm to produce more output from the same amount of inputs or the same output with fewer inputs. Since each unit becomes cheaper to make, the firm's profitability at each price point increases, incentivising them to offer more for sale and shifting the supply curve to the right.
8. How do producer expectations about future prices influence the current supply of a storable good like grain?
Producer expectations can significantly impact the current supply. If grain producers expect the price of grain to be much higher in the future, they may choose to reduce the current supply to the market. They would store a larger portion of their harvest to sell later at the anticipated higher price. This decision to withhold inventory causes a decrease in the present supply (a leftward shift of the supply curve), even if production costs have not changed.
