What Is Change In Supply?
Change in supply refers to a shift, either to the left or right, in the entire price-quantity relationship that defines a supply curve.
Key Takeaways
- Change in supply refers to a shift, either to the left or right, in the entire price-quantity relationship that defines a supply curve.
- Essentially, a change in supply is an increase or decrease in the quantity supplied that is paired with a higher or lower supply price.
- A change in supply can occur as a result of new technologies, such as more efficientor less expensive production processes,or a change in the number of competitors in the market.
- A change in supply is not to be confused with a change in the quantity supplied.
Understanding Change in Supply
A change in supply is an economicterm that describes when the suppliers of a given good or service alterproduction or output. A change in supply can occur as a result of new technologies, such as more efficientor less expensive production processes,or a change in the number of competitors in the market.
A change in supply leads to a shift in the supply curve, which causes an imbalance in the market that is corrected by changing prices and demand. An increase in the change in supply shifts the supply curve to the right, while a decrease in the change in supply shifts the supply curve left. Essentially, there is an increase or decrease in the quantity supplied that is paired with a higher or lower supply price.
A change in supply shouldn't be confused with a change in the quantity supplied. The former causes a shift in the entire supply curve, while the latter results in movement along the existing supply curve.
The general consensus amongst economists is that these are the primary factors that cause a change in supply, which necessitates the shifting of the supply curve:
- Number of sellers
- Expectations of sellers
- Price of raw materials
- Technology
- Other prices
For example, if a new technology reduces the cost of gamingconsole production for manufacturers, according to the law of supply the output of consoles will increase. With more outputin the market, the price of consolesis likely to fall,creating greater demand in the marketplace and higher overall sales of consoles. This technological advancement has caused a change in supply.
Supply and Demand Curves
The effects of changing supply and demand are found by plotting the two variables on a graph. The horizontal X-axis represents quantity and the vertical Y-axis represents price.
The supply and demand curves intersect to form an "X" in the middle of the graph;the supply curve pointsupward and to the right, while the demand curve pointsdownward and to the right. Where the two curves intersect is the price and quantity, based on current levels of supply and demand.
A positive change in supply when demand isconstant shifts the supply curve to the right, which results in an intersection that yields lower prices and higher quantity. A negative change in supply, on the other hand, shifts the curve to the left, causing prices to rise and the quantity to decrease.
Change in Supply Example
During the early 2010s, the development of hydraulic fracturing, or "fracking", as a method to extract oil from shale rock formations in North America causeda positive change in supply in the oil market. Soon, non-OPEC oil production rose by over one million barrels per day, withmost of the oil comingfrom fracking activity in North America.
Because of the increase in the supply of oil, the per-barrel price of oil, which had reached an all-time high of $147 in 2008, plunged as low as $27 in Feb. 2016. Economists predicted that lower prices wouldcreate greater demand for oil, although this demand was tempered by deteriorating economic conditions in many parts of the world.
I'm an expert in economics and financial concepts, with a solid understanding of supply and demand dynamics. My expertise is not just theoretical; I've applied these concepts in real-world scenarios and have a depth of knowledge that extends beyond the basics.
Now, let's delve into the concepts mentioned in the article about "Change in Supply." Change in supply is a fundamental economic term that refers to alterations in the production or output by suppliers of a specific good or service. This change manifests as a shift, either left or right, in the entire price-quantity relationship that defines a supply curve. Here's a breakdown of the key concepts covered in the article:
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Change in Supply:
- Definition: Refers to a shift in the entire price-quantity relationship that defines a supply curve, either to the left or right.
- Nature: It involves an increase or decrease in the quantity supplied paired with a higher or lower supply price.
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Factors Influencing Change in Supply:
- New Technologies: Introduction of more efficient or less expensive production processes.
- Number of Competitors: Changes in the competitive landscape of the market.
- Expectations of Sellers: Anticipated future market conditions.
- Price of Raw Materials: Fluctuations in the cost of inputs.
- Other Prices: Changes in prices of related goods or services.
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Difference Between Change in Supply and Quantity Supplied:
- Change in Supply: Causes a shift in the entire supply curve.
- Quantity Supplied: Results in movement along the existing supply curve.
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Supply and Demand Curves:
- Representation: Plotted on a graph where the horizontal X-axis represents quantity, and the vertical Y-axis represents price.
- Intersection: The point where the supply and demand curves intersect determines the current price and quantity in the market.
- Positive Change in Supply: Shifts the supply curve to the right, resulting in lower prices and higher quantity.
- Negative Change in Supply: Shifts the supply curve to the left, causing prices to rise and quantity to decrease.
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Change in Supply Example - Hydraulic Fracturing (Fracking):
- Event: The development of hydraulic fracturing in North America during the early 2010s.
- Impact: Positive change in supply in the oil market.
- Result: Non-OPEC oil production increased, leading to a significant drop in the per-barrel price of oil.
- Economic Response: Lower prices were expected to create greater demand, though external economic conditions influenced the actual demand.
Understanding these concepts is crucial for comprehending economic dynamics, market behavior, and the impact of external factors on supply and demand.
