change in Supply is the amount of a good or service that a producer is willing and able to sell at a given price over a certain period of time. Changes in supply occur when the number of goods or services that producers are willing and able to offer at a given price changes. The change in supply can result from various factors such as changes in input prices, technology, production processes, and the number of producers in the market. This blog post will explore what change in supply means, its causes, and its effects on the market.
Understanding Change in Supply
Change in supply refers to the shift of the entire supply curve to the right or left. It occurs when the quantity supplied of a good or service changes at every price level. When there is a change in supply, the entire supply curve moves to a new position. An increase in supply is depicted by a shift of the supply curve to the right, while a decrease in supply is represented by a shift to the left.
Factors that Cause Change in Supply
There are several factors that can cause a change in supply, including:
- Input Prices: Changes in the cost of inputs, such as labour, raw materials, and energy, can affect the cost of production, and hence, the number of goods or services supplied. For example, if the price of oil increases, the cost of production of goods that require oil as an input will increase, leading to a decrease in supply.
- Technology: Advancements in technology can lead to an increase in the productivity of producers, leading to an increase in the supply of goods or services. For instance, new farming technologies have led to an increase in crop yields, leading to an increase in food supply.
- Production Processes: Changes in production processes can also affect the supply of goods or services. For example, if a producer adopts a new production process that is more efficient, they can produce more goods or services, leading to an increase in supply.
- Number of Producers: An increase in the number of producers in a market can lead to an increase in the supply of goods or services. On the other hand, a decrease in the number of producers can lead to a decrease in supply.
- Government Policies: Government policies such as taxes, subsidies, and regulations can also affect the supply of goods or services. For example, if the government imposes a tax on a particular product, the cost of production increases, leading to a decrease in supply.
Effects of Change on Supply
The effect of a change in supply on the market depends on the elasticity of demand. Elastic demand means that the quantity demanded changes significantly in response to a change in price, while inelastic demand means that the quantity demanded changes slightly in response to a change in price.
If the demand for a good or service is elastic, a change in supply will have a significant effect on the market price. An increase in supply will lead to a decrease in price, while a decrease in supply will result in an increase in price. On the other hand, if the demand is inelastic, a change in supply will have a small effect on the market price. An increase in supply will result in a slight decrease in price, while a decrease in supply will lead to a slight increase in price.
Examples of Change in Supply
Let us consider a few examples to understand how a change in supply affects the market.
Example 1: The Market for Coffee
Suppose the market for coffee is in equilibrium, with a price of $3 per pound and a quantity of 1,000 pounds per week. If there is a technological advancement in coffee production that increases productivity, the cost of production will decrease, leading to an increase in supply. The supply curve will shift to the right, as shown below:
As a result of the increase in supply, the new equilibrium price will be lower than the initial price, and the new equilibrium quantity will be higher than the initial quantity. The new equilibrium price will be determined at the intersection of the new supply curve and the original demand curve.
Example 2: The Market for Apples
Suppose the apple market is in equilibrium, with a price of $2 per pound and a quantity of 1,000 pounds per week. If there is a severe weather condition such as a drought that affects the apple harvest, the supply of apples will decrease. The supply curve will shift to the left, as shown below:
As a result of the decrease in supply, the new equilibrium price will be higher than the initial price, and the new equilibrium quantity will be lower than the initial quantity. The new equilibrium price will be determined at the intersection of the new supply curve and the original demand curve.
Example 3: The Market for Smartphones
Suppose the smartphone market is in equilibrium, with a price of $500 per unit and a quantity of 1,000 units per week. If a new competitor enters the market and starts producing smartphones at a lower cost, the supply of smartphones will increase. The supply curve will shift to the right, as shown below:
As a result of the increase in supply, the new equilibrium price will be lower than the initial price, and the new equilibrium quantity will be higher than the initial quantity. The new equilibrium price will be determined at the intersection of the new supply curve and the original demand curve.
Conclusion
In conclusion, changes in supply occur when the quantity of goods or services that producers are willing and able to offer at a given price changes. Factors that can cause a change in supply include changes in input prices, technology, production processes, the number of producers, and government policies. The effect of a change in supply on the market depends on the elasticity of demand. An increase in supply will lead to a decrease in price if the demand is elastic, while a decrease in supply will result in an increase in price. Conversely, if the demand is inelastic, a change in supply will have a small effect on the market price. Finally, understanding the concept of change in supply is essential in analyzing and predicting changes in the market.
