Shifting Supply
We are now going to look at how to shift supply. In subsequent
sections we will look at the factors that shift demand. The last
section on demand will show how a demand works and the expected outcomes.
Here is how you would evaluate how a factor would cause supply to shift:
-
Draw the supply and demand curves as they would appear before the shift.
Mark the original equilibrium as you did under demand.
-
Holding price constant ask yourself if the event would cause supply
to increase or decrease. If supply would increase then draw the new
supply curve to the right. If supply would decrease then draw supply
to the left. Sometimes it is easier to hold output constant and ask yourself
what would happen to the cost of production. If the cost of production
would increase, then that is a decrease in supply and you would move the
supply curve to the left. If the cost of production would decrease,
then that is an increase in supply and you would draw the new supply curve
to the right.
-
Find the new intersection of supply and demand and draw the new price
and output lines.
This is how changes in non- price factors would cause the supply curve
to shift. We will now look at the factors that can cause supply to
shift.
