A change in quantity supplied

A change in the price of a good or service causes a change in the quantity

supplied. This change is represented by a movement along the supply curve which creates
an extension or a contraction in supply. A fall in price from P1 to P2 causes the quantity
supplied to contract from Q1 to Q2 whereas a price rise from P1 to P3 causes the quantity
supplied to extend from Q1 to Q3.

Extension in supply: a rise in the quantity supplied caused by a rise in the price of the
product itself.

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Contraction in supply: a fall in the quantity supplied caused by a fall in the price of the
product itself.

A change in supply
While a change in the price of the product itself causes a movement along the
supply curve, a change in supply conditions causes the supply curve to shift inward or
outward. An increase in supply is illustrated by a shift to the right whereas a decrease in
supply results in a movement of the supply curve to the left, as shown in the following
Figures: An increase in supply is shown by a rightward shift of the supply curve from S1
to S2. Similarly, a fall in supply is represented by a leftward shift of the supply curve
from S1 to S3

Causes of changes in supply (Determinants of supply)

A supply function
It shows the relationship between quantity supplied and those factors that affect
the quantity supplied. A supply function can be written as follows:
ܳ௦ ൌ ݂ሺܲ௫ ǡ ܲ௬ ǡ ‫ܥ‬ǡ ܶǡ ܶܽ‫ݔ‬ǡ ܵǡ ‫ܩ‬ሻ
Where:
ܳ௦ ൌ ܳ‫݈݀݁݅݌݌ݑݏݕݐ݅ݐ݊ܽݑ‬
ܲ௫ ൌ ܲ‫ݔ݀݋݋݂݃݋݁ܿ݅ݎ‬
ܲ௬ ൌ ܲ‫ݏ݀݋݋݃݀݁ݐ݈ܽ݁ݎ݂݋݁ܿ݅ݎ‬

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 ‫ ܥ‬ൌ ‫݊݋݅ݐܿݑ݀݋ݎ݌݂݋ݏݐݏ݋݄ܿ݁ݐ݊݅ݏ݄݁݃݊ܽܥ‬
ܶ ൌ ݄ܶ݁ܿ݊‫݁ܿ݊ܽݒ݈݀ܽܽܿ݅݃݋݈݋‬
ܶܽ‫ ݔ‬ൌ ܶܽ‫ݏ݁ݔ‬
ܵ ൌ ܵ‫ݕ݀݅ݏܾݑ‬
‫ ܩ‬ൌ ‫ݏݎ݋ݐ݂݈ܾܿܽܽ݋݈ܩ‬
Changing any of the above factors cause a shift in supply curve

1. Changes in the cost of production: an increase in the price of inputs causes the
supply curve to shift inward. A decrease in the price of inputs causes the supply
curve to shift outward.
2. Changes of the prices of related products: Firms often produce a range of
products. If one product becomes more popular, its price will rise and supply will
extend. In order to produce more of this product, the firm may divert the resources
from the production of other products. The prices of these other products have not
changed but the firm will now supply less at each and every price.
3. Technological advance: improvements in technology raise the productivity of
capital, reduce costs of production and result in an increase in supply.
4. Subsidy: a payment by a government to encourage the production or
consumption of a product. If the government provided a subsidy for producers,
then they can produce more causing the supply curve to shift down to the right
(outwards). the granting of a subsidy will cause an increase in supply whilst the
removal of a subsidy will cause a decrease in supply.
5. Taxes: if the government imposed a direct tax on firms, including corporation tax,
and indirect taxes, such as value added taxes (VAT) or excise tax, are effectively
a cost that firms have to pay. A rise in the rate of an existing tax or the imposition
of a new tax, will make it more expensive to supply a product and hence will
reduce supply
6. Weather conditions: Changes in weather conditions affect particular agricultural
products. A period of good weather around harvest time is likely to increase the
supply of a number of crops. Very dry, very wet or very windy weather, however,
is likely to damage a range of crops and thereby reduce their supply.

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7. Disasters and wars: Natural disasters, such as hurricanes, floods and wars, can
result in a significant decrease in supply. The earthquake and resulting tsunami
that hit Japan in March 2011 caused extensive damage to infrastructure and killed
workers. These effects reduced the supply of a range of products.
8. Discoveries and depletions of resources: The supply of some commodities, such
as coal, gold and oil, is affected by discoveries of new sources. For example, the
discovery of new oilfields will increase the supply of oil. In contrast, if coal is
used up in some mines, the supply of coal will be reduced in the future.

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 Market Equilibrium
When a market is in equilibrium, the market supply matches the market demand,
will there be no pressures to change the market price.
Market price is also called equilibrium price because it is the price at which the
quantity supplied equals the quantity demanded, and so there are no shortages or
surpluses of the product. The equilibrium price of a product can be found by comparing
the demand and supply schedules of that product, and seeing where demand and supply
are equal.
For example:
The following table represents the demand schedule and the supply schedule for train
tickets in New York from Station X to Station Y

Based on this table, the equilibrium price is $35, since at this point demand and supply
are equal (3800). The equilibrium price can also be found by examining a demand and
supply diagram. It occurs where the demand and supply curves intersect. the price and
quantity will stay at the equilibrium level until demand and supply conditions change.

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