Diagrams that illustrate shifts of a supply curve

Published by Patrick Mutisya · 14 days ago

Cambridge IGCSE Economics 0455 – Supply Shifts

Cambridge IGCSE Economics 0455

The allocation of resources – Supply

In this section we focus on how the supply of a good or service can change. A shift of the supply curve is a change in the quantity supplied at every price level, caused by factors other than the price itself.

Key concepts

  • Supply curve: relationship between price \$P\$ and quantity supplied \$Q_s\$.

  • Shift of the supply curve: movement of the entire curve left (decrease) or right (increase).

  • Factors that shift supply: input prices, technology, expectations, number of sellers, taxes/subsidies, natural conditions, government policy.

Supply function and shift notation

The supply of a good can be expressed by a linear function:

\$Q_s = a + bP\$

where \$a\$ is the intercept and \$b>0\$ is the slope. A shift to the right increases \$a\$ (or decreases \$b\$ if the slope changes), while a shift to the left decreases \$a\$.

Diagrammatic representation

Suggested diagram: Supply curve shifting right due to lower input costs. The original curve S₁ moves to S₂, increasing quantity supplied at each price.

Suggested diagram: Supply curve shifting left due to a tax on production. The original curve S₁ moves to S₂, decreasing quantity supplied at each price.

Factors causing a shift of the supply curve

FactorDirection of shiftReason
Input prices (e.g., raw material cost)Decrease → right shift; Increase → left shiftLower input cost reduces production cost, encouraging more supply.
TechnologyImprovement → right shift; Decline → left shiftMore efficient production increases output at same cost.
Number of sellersIncrease → right shift; Decrease → left shiftMore firms supply more quantity.
Expectations of future pricesExpect higher future price → left shift (hold back supply); Expect lower future price → right shiftFirms adjust current supply based on future profit prospects.
Taxes and subsidiesTax → left shift; Subsidy → right shiftTaxes increase cost, reducing supply; subsidies lower cost, increasing supply.
Natural conditionsFavorable weather → right shift; Adverse weather → left shiftProduction conditions affect output capacity.
Government policy (e.g., regulations)Restrictive regulation → left shift; Deregulation → right shiftRegulations can raise costs or barriers to entry.

Illustrative example: Coffee market

  1. Suppose the price of coffee beans falls from \$P1\$ to \$P2\$. This is an input price change.

  2. The supply curve for coffee shifts right from S₁ to S₂.

  3. At the new equilibrium price \$P2\$, the quantity supplied increases from \$Q1\$ to \$Q_2\$.

  4. Diagram:
    Suggested diagram: Coffee supply shift right due to lower bean cost.

Key takeaways

  • A shift of the supply curve is caused by non-price determinants.

  • Right shift increases quantity supplied at every price; left shift decreases it.

  • Understanding supply shifts helps predict market outcomes and policy impacts.