A change in supply refers to the demand curve shifting left or right due to a change in the relationship between the price of a product and the quantity supplied.
There are a few things that will change supply. Some increase supply which is shown as the supply curve shifting to the right while others decrease supply which is shown as the supply curve shifting to left.
What changes supply:
You will need to understand these factors and how they shift the supply curve. A lot of the test questions relate to this.
White sneakers are currently selling for $150. If Swag & Co and all other white sneaker suppliers think the price of white sneakers will be $200 next year what will they do?
If they supply less this year and wait until prices are higher next year, they can make more money. This causes supply to decrease today and is shown as the supply curve shifting left.
If white sneakers are currently selling for $150 and Swag & Co believes the price of white sneakers is going to drop next year to $100, they will supply more this year because they won’t make as much money next year.
This causes supply to increase and is shown as the supply curve shifting right.
When it comes to making white sneakers, Swag & Co has several inputs. They have workers who assemble the shoes, raw leather, and white paint. Let’s say the price of leather does way down. This will make the shoes more profitable and shift the supply curve to the right.
If inputs are less expensive, supply will increase. This is shown as the supply curve shifting right.
Now let’s say that the price of white paint (an input for making sneakers) doubles and is now super expensive. Making shoes will not be as profitable and Swag & Co will supply less.
If inputs are more expensive, supply will decrease. This is shown as the supply curve shifting left.
Scientists discover how to make a robot that quickly makes shoes and paints them white. This robot makes Swag & Co’s process ten times faster. Swag & Co can now supply more white sneakers.
New technology that helps suppliers will cause an increase in supply. This is shown as the supply curve shifting right.
When technology decreases (this does not happen often) then suppliers will not be able to supply as much. An example of this would be a new machine breaking.
A decrease in available technology will cause an decrease in supply. This is shown as the supply curve shifting left.
Swag & Co is producing white sneakers when Uncle Sam and the US Government decide to put regulations on white sneaker production. The regulations make it more expensive for Swag & Co to produce shoes.
Increases in regulation make it more costly to produce. This lowers supply. This is shown as a shift in the supply curve to the left.
When regulations decrease, producing becomes more profitable and supply increases. This is shown as a shift in the supply curve to the right.
Swag & Co is making white sneakers when they find out that black sneakers are selling for way more money. Making white sneakers and black sneakers are very similar processes so Swag & Co switches to supplying black sneakers.
White sneakers and black sneakers would be considered substitutes-in-production.
A substitute-in-production is one of two (or more) goods that use the same resource for production in an exclusionary manner. The supplier cannot produce both; they must choose one of the substitute-in-production goods.
This means that Swag & Co can either make white sneakers or black sneakers but not both.
If the price of substitute-in-production goes up (black sneakers cost more), then suppliers will switch products (Swag & Co now makes blacks sneakers) which decreases supply. This is shown as the supply curve shifting left.
If the price of a substitute-in-production decreases (black sneakers are cheaper), then suppliers from other markets (the black shoe market) will switch into our market and increase supply. This is shown as the supply curve shifting right.
Whenever Swag & Co makes white sneakers they also make shoe laces. White sneakers and shoe laces would be considered complements-in-production.
A complement in-production are two or more goods that are jointly produced using a given resource. The production of one good automatically triggers the production of another, often as a bi-product.
If the price of shoe laces goes up, Swag & Co will produce more shoe laces which causes an increase in the supply of white sneakers.
If the price of shoe laces goes down, Swag & Co will produce less shoe laces which causes a decrease in the supply of white sneakers.
If a lot more companies decide to make white sneakers, then the supply of white sneakers will increase. This will cause the supply curve to shift to the right.
If companies who already make white sneakers go out of business or leave the market, then the supply of white sneakers will decrease. This will cause the supply curve to shift to the left.