Supply and Demand

Factors That Shift Supply

Several factors can shift the supply curve.

Factors that increase supply cause the supply curve to shift to the right, while factors that decrease supply cause the supply curve to shift to the left. When the supply curve shifts to the right, more units will be supplied at each price. When the supply curve shifts to the left, fewer units will be supplied at each and every price.

Factors that can shift the supply curve include the following:

  • A change in production or input costs (the money spent to manufacture a product, as for parts and raw materials) will cause a change in supply. A decrease in production or input costs tends to increase supply; an increase in production or input costs tends to decrease supply. For example, if a car part is made from a specific metal and the supply dwindles, it will become too expensive for car manufacturers to buy it, and the curve will shift to the left.
  • Technological progress in the form of product innovation (e.g., from mainframe computers to smartphones) tends to increase supply because there is greater demand for the new products and new sellers may become involved in manufacturing the new products, shifting the curve to the right.
  • The discovery of new resources (e.g., undersea oil and gas) tends to increase supply; the depletion of existing resources (e.g., deforestation) tends to decrease supply.
  • Government policies that discourage production of a particular good by taxing it (e.g., tax on aluminum manufactures because pollution occurs with its production) tend to decrease supply; government policies that encourage production of a particular good by subsidizing it (e.g., renewable energy) tend to increase supply.
  • The number of suppliers can shift the supply curve. If new suppliers enter the market with similar goods it increases the supply, and the curve moves to the left. If suppliers exit the market, the supply curve will shift to the left.
  • The prices of substitute goods in the production process can shift the supply curve; when substitute input goods become less expensive, the supply curve shifts to the right, this is a cost cutting way to manufacture more goods and increase supply.
  • Producer expectations can also shift the supply curve. If producers expect higher regulatory burdens to affect their industry in the future, they may opt to increase supply currently in order to sell more items before actions impact their industry.
When there is a change in production or input costs, technological progress, resources, or government policy the entire supply curve will shift. A shift to the right (from S1 to S2) means that more units will be supplied at each price. A shift to the left (from S1 to S3) means that fewer units will be supplied.