Changes in Supply

1. Changes
in Supply
Shakeel Ahmed Qureshi

2. Changes in Supply
There are two types of changes in supply:
1. Extension & Contraction of supply (Change in Quantity Supply)
2. Rise & fall in supply (Change in Supply)

3. Change in Quantity Supply
Extension & Contraction of supply:
Extension & contraction of supply means supply of a product changes due to change in its price
only.
a) Extension of Supply: It means price of a commodity rises & more quantity is offered for sale.
b) Contraction of Supply: It means prices of a commodity falls & less quantity is offered for sale.

4. Change in Quantity Supply
Price Qs
10 100
20 200
P
Qs
b
a10
20
200100
S
S
Extension
Contraction
0
Explanation with the help of
Diagram
X-axis: shows the quantity supplied.
Y-axis: shows the price of that
commodity.
Form the above diagram, the
movement from "a" to "b" along
supply curve shows extension of
supply and movement from point
"b" to "a" on same curve shows
contraction of supply.

5. Shift in Supply
Rise and Fall of Supply: When supply of a commodity changes
not due to its price but due to other factors such as cost of
production, method of production, government tax etc., it may
cause following situations:
Rise of Supply: Rise in supply occurs when supply of a
commodity increases not due to increase in price but due to other
factors such as cost of production etc. This is shown as follows.
Price QS
10 5
10 10
Explanation with table and diagram;
The diagram is plotted according to the table. In this diagram,
price of a commodity does not change but there is change in
supply of a commodity and supply curve shifts rightward.
P
Qs
S
S
S1
S1
10
105O
A B
Rise

6. Shift in Supply
Price QS
10 10
10 5
Explanation with table and diagram;
The diagram is plotted according to the table. In this diagram,
price of a commodity does not change but there is change in
supply of a commodity and supply curve shifts leftward.
P
Qs
S
S
S2
S2
10
105O
C A
Fall
Fall of Supply: fall in supply occurs when supply of a
commodity decreases not due to decrease in price but due to other
factors such as cost of production etc. which is shown as follows.

7. Shift Factors of Supply
Other factors besides price affect how much will
be supplied:
Prices of inputs used in the production of a good.
Technology.
Suppliers’ expectations.
Taxes and subsidies.

8. Factors that Shift Supply
Supply
Resource
Prices
Technology
And
Productivity
Expectations
Of
Producers
Number
Of
Producers
Prices of
Related
Goods and
Services

9. Price of Inputs (Resource Prices)
When costs go up, profits go down, so that the
incentive to supply also goes down.
Technology
Advances in technology reduce the number of inputs needed to
produce a given supply of goods.
Costs go down, profits go up, leading to increased supply.
Expectations
If suppliers expect prices to rise in the future, they may store
today's supply to reap higher profits later.

10. Number of Suppliers
As more people decide to supply a good the market supply increases
(Rightward Shift).
Price of Related Goods or Services
The opportunity cost of producing and selling any good is the forgone opportunity to
produce another good.
If the price of alternate good changes then the opportunity cost of producing changes
too!
Example Mc Don selling Hamburgers vs. Salads.
Taxes and Subsidies
When taxes go up, costs go up, and profits go down, leading suppliers to reduce output.
When government subsidies go up, costs go down, and profits go up, leading suppliers
to increase output.

11. Changes
in Supply
Shakeel Ahmed Qureshi