Reasons for a Shift in the Supply Curve
Supply can increase or decrease. In this case, the supply curve shifts to the right or to the left respectively. The following are reasons:
1. An advance in technology.
An advance in the technology of making the product will lower the cost of producing it. This means that the firm increases its profits, and it has more incentive to increase its supply.
2. A change in the price of an input used to make the product.
When the price of an input, such as labor, raw materials, machinery, or land, decreases, the firm makes more profit per product and is willing and able to increase the supply of the product (and vice versa).
3. A change in taxes, subsidies, or regulations.
Taxing or imposing additional regulations on the manufacturing of a product lowers the supply, because the total cost of making the product increases. A subsidy, a government grant to a business or individual, or a reduction in regulations increases supply. Public schools, community colleges, and public universities receive subsidies from local and state governments. These additional funds allow schools to supply more courses and hire more teachers and professors than would be the case if they did not receive government funds.
4. The number of suppliers.
When more firms decide to enter the market, the supply of the product increases (and vice versa). In some industries, the number of suppliers is controlled by industry agencies, which require licenses, permits, diplomas, etc. The American Medical Association sets strict requirements regarding the entry of doctors into the industry. This safeguards a certain level of quality and protects consumers, but also restricts the number of suppliers, and keeps doctors’ prices higher than otherwise would be the case. These changes shift the supply curve (see next section). A shift in the supply curve is called an increase in supply (not quantity supplied).
If a natural disaster (like a flood or hurricane) occurs, it takes away production capacity. This decreases supply.