Changes in the Supply Curve

Just like with the demand curve…

•The two major categories in
the changes of the supply
curve are the movement along
the supply curve and shifts in
the supply curve
Movements Along the Supply Curve
Explanation
•Movements along the supply curve is brought about by
changes in the prices of commodities
•Price increases of a commodity will increase quantity
demanded, indicating an expansion in supply
•A decrease in the price of a commodity on the other
hand, will cause a decrease in quantity, indicating a
contraction in supply (or in common language, a Tagalog
term “laos” meaning overall lowering of demand also
causes it)
Shifts in the Supply Curve
Explanation
•Shifts in supply curve is mainly
caused by changes in other
factors affecting supply of a
good except the price of the
commodity
Instances when supply curve shifts to the
left
•Increases in minimum wage causes
production costs to rise, and forces
producers to reduce the supply of the
good
•Increases in business tax may also
lower supply production
Instances when supply curve shifts to the
right
•When there is abundant
harvest that causes
supply to increase
Other FactorsAffecting the Supply of the
Commodity
Price of Production Inputs
•When these increase, there will be an
increase in the cost of production at
every level of production. At a given
point, sellers will also be reluctant to
maintain this cost, so in the end,
quantity supplied will be reduced
Taxes
•Are not factor inputs nor raw
materials but are still part of
operating costs. Thus if taxes
increase, sellers may be discouraged
to increase their supply of
commodity in the market.
Technology
•It may be labor-intensive
because it is relatively cheap
for producers, or capital-
intensive, because sellers want
more quality in their goods
Expectation
•The anticipation of what is going to
happen on the price of the
commodity can also influence the
amount supplied in the market (ex.
Seasonal increases in the prices of
fruits)
Principle of
Diminishing Marginal
Productivity and Increasing
Marginal Costs
Explanation of Concept
•As the production of a good
increases, not only does its
total cost increases but the
additional or marginal cost
increases as well.
If prices of a commodity or the marginal
revenue is higher than marginal costs…
…the marginal profit is
positive and implies that total
profits can still be increased
by raising production.
If prices of a good or marginal revenue is
lower than marginal cost…

…the marginal profit is

negative and implies that
total profits will decline
with additional production.
Therefore…
•When marginal profit (MP) reaches
zero, the firm has attained the
maximum level of profit.
•This means that when marginal profit
is zero, price or marginal revenue is
equal to marginal cost (MR=MC)
Case Analysis
•The government plans to increase taxes in
the production of cigarettes after the
Department of Health has determined that
smoking the product is dangerous to the
overall health of the individual. How does
this affect the changes in the supply curve
and explain your answer.