Shifts in the Supply Curve - A-Level Economics

Shifts in the Supply Curve

Factors which shift the supply curve

Changes in the costs of production

If a good costs more to produce, the producer will produce less due to reduced profit. Factors such as wage cost, capital costs and transport costs all determine production costs.

The introduction of new technology

If new technology makes the production process more cost-­‐effective and quicker, firms produce more of the good because the lower production costs increases profits on that particular good.

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    Indirect Taxes and Government Subsidies

    Indirect taxes may be placed on certain goods, where the price paid by customers will be higher than  the revenue received by firms. Therefore tax has to be paid to the government, and this would reduce

    supply because producers pursue other goods which don’t have such taxes or have lower tax rates. Often, governments pay companies a subsidy to produce a certain product for an economy, and such subsidies increase profit for firms, so supply increases.

    Price of other goods

    If the firm finds that another good it can produce is currently earning greater profits, the firm may witch production to that good, decreasing the supply of the good it initially produced. They might already produce some of this other good, in which case they would increase the quantity produced, or they might start to produce this good from scratch.

    Expectation of Future Prices

    If producers expect prices to increase in the future, they may limit supply in the current period so that they can sell more in the future period. Remember, supply refers to quantity the firm is willing to sell. Therefore, the firm can still produce the same amount, but just limit the amount on offer to consumers. This would allow them to store some of the good for the future period when prices will be higher.

    Factors which shift the supply	curve
    Factors which shift the supply curve – A-Level Economics
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    → What is a shift in the supply curve?

    A shift in the supply curve occurs when the quantity of a good or service supplied changes at a given price level. This can be caused by various factors such as changes in technology, production costs, government policies, or the availability of raw materials.

    → How is a shift in the supply curve different from a movement along the supply curve?

    A movement along the supply curve occurs when the price of a good or service changes, resulting in a change in the quantity supplied. On the other hand, a shift in the supply curve occurs when factors other than price cause a change in the quantity supplied at a given price level.

    → What is the difference between a shift in supply and a shift in demand?

    A shift in supply is caused by changes in production costs, technology, or other factors that affect the quantity supplied at a given price level. A shift in demand, on the other hand, is caused by changes in consumer preferences, income levels, or other factors that affect the quantity demanded at a given price level.

    → What are some factors that can cause a shift in the supply curve?

    Factors that can cause a shift in the supply curve include changes in technology, production costs, taxes or subsidies, the availability of raw materials, and changes in the number of suppliers in the market.

    → How does a shift in the supply curve affect market equilibrium?

    A shift in the supply curve can cause a change in the market equilibrium price and quantity. If the supply curve shifts to the right, indicating an increase in supply, the equilibrium price will decrease and the equilibrium quantity will increase. If the supply curve shifts to the left, indicating a decrease in supply, the equilibrium price will increase and the equilibrium quantity will decrease.

    → What are some examples of factors that can cause a shift in the supply curve?

    Examples of factors that can cause a shift in the supply curve include changes in technology, changes in production costs, changes in government regulations or taxes, changes in the availability of raw materials, and changes in the number of suppliers in the market.

    → How can businesses respond to a shift in the supply curve?

    Businesses can respond to a shift in the supply curve by adjusting their production levels, finding new suppliers, improving their technology or production processes, or finding ways to reduce their costs. They can also adjust their prices to reflect the changes in supply and demand.

    → What are some limitations of using the supply and demand model to analyze markets?

    The supply and demand model assumes that all actors in the market have perfect information and act rationally, which may not always be the case. The model also assumes that there are no external factors that affect the market, such as natural disasters or political instability. Additionally, the model may not account for the impact of market power, such as monopolies or oligopolies.

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