Distinguish between movement along a supply curve and shift of a supply curve.

The supply curve shows the influence of price on the quantity supplied when other factors that influence quantity supplied are held constant When due to change in price, the quantity supplied changes, other things being constant, then we have movement along the supply curve. As P increases, the quantity supplied increases and vice-versa. This is shown in the following diagrams.


Shifts in the Supply Curve:

When any of the other factors change, (other than the price) the entire supply curve shifts. These other factors relate the supply side of the market i.e., the cost side.

These shift factors are described below(t) State of technological knowledge for example, consider manufacturing of a shirt. Some technological innovation might have made shirt production more rapid, lowering the amount of labour necessary per shirt.

Suppose that this change in technology lowered labor usage sufficiently to reduce the cost of shirt product. This would imply that the supply curve shifts outward (also referred as an increase in supply) as shown hi the following of diagram:


The second important shift factor is the conditions of supply of inputs like labour, energy etc. that are used to produce the good. Supply conditions for inputs relate to the prices that must be paid for their use. In considering the supply of agricultural products, climatic conditions and variations in them become as important factor.

In a modern economy, taxes and subsidies constitute a major of cost and hence changes In them lead to shifts in the supply curve. In particular, an increase in excise duty/per unit tax leads to a decrease in supply or leftward/upward shift of the supply curve.

Tags: Ba Economics

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