Introduction
Before talking about the change in supply or knowing the change in supply definition, we must first know what supply is. In Economics, the Supply of a commodity refers to the amount of the commodity which is made available to consumers at a particular point in time. While, the increase and decrease of supply is known as the ‘change in supply’. But why do the changes occur? Does it effect any economic scenario?
We will know all about this in this study. Tune in and let us dive in together starting from the revision of supply.
Definition of Supply
Supply refers to a concept in Economics which means the amount of commodity that is made available to the consumers at a particular point of time. Supply has a relation with a price like demand, but unlike demand, the supply of a commodity increases when price increases, other things remaining constant. Other factors also contribute to bringing about a change in the supply of a commodity. The supply is determined by various factors like price, utility and preferences of the consumers. Now let us move on to understanding the concept of change in supply.
Change in Supply - The Definition
The change in Supply is defined as an increase or decrease in the Supply of a commodity caused by various related factors. The change in supply definition is the increase or decrease in supply owing to various factors. Change in supply may be caused by the price of related goods, tastes, income and consumer preferences. This is what causes a change in supply.
A change in supply may occur because of the introduction of new technologies, the introduction of new and efficient methods of production, and an increase in competition in the market. Graphically change in supply brings about a shift in the supply curve. This is, in brief, the change in supply definition.
What Causes Change in Supply?
Now that we know what is the change in supply, let us look at a few primary factors that cause supply to change. There is a consensus among economists that there are various primary factors that cause supply to change. These include technology, the price of raw materials, seller expectations, number of sellers in the market and prices of other commodities.
For example, when the introduction of a new technology reduces the cost of production of a commodity as per the law of supply, the output of the commodity would increase. If the overall supply of the commodity also increases in the market, the prices would fall, demands increase, and subsequently causing an increase in supply.
Increase in Supply
An increase in supply refers to the increase in supply at the same price or in other words, a rightward shift of the supply curve. Various factors cause an increase in supply. If the cost of production decreases, it becomes cheaper for the producers to produce a particular good and hence to make more profit supply increases.
Technological progress also reduces the production cost causing the supply to increase. Taxation and subsidy would also influence the supply of a good. Reduction in taxes and an increase in subsidies cause the production cost to fall and the supply to increase.
Decrease in Supply
The decrease in supply is the complete opposite situation. A decrease in supply refers to a fall in supply at the same price or the leftward shift of the supply curve. Various factors may cause a decrease in supply.
First and foremost, an increase in the production cost would make it more costly for the producers to produce, causing a decrease in supply.
When the producers refuse to adopt new technology, their cost of production increases and this causes a decrease in supply.
When taxes are increased, and subsidies reduced, it causes the supply to decrease owing to an increase in the cost of production.
When supply decreases, there is excess demand in the market, which causes an increase in prices of goods and services and an eventual fall in demand in accordance with the law of demand. The change continues until a new equilibrium is established in the market.
What are the Factors Behind it?
The Factors:
Some of the factors affecting change in supply are the prices of related products, income and spending habits of customers, and tastes and preferences of the consumers themselves.
Reasons for Change in Supply
Change in Supply can be caused due to changes in technology, machinery usage or development of better and efficient methods of production. An increase in competition in the market also affects Supply. Changes in the price of raw materials or other inputs of production affect Supply. Seller expectations also affect Supply.
The future expectation of prices also affects Supply immensely. If it is expected that prices of a commodity will fall in the future, the demand for the commodity will fall which will result in falling production and Supply of the commodity. Similarly, if the prices are expected to rise, the demand for the commodity will increase causing pressure on the Supply of the commodity in the present.
Supply Pattern Changes
Supply can increase or decrease depending on various factors discussed above. Let us understand the concepts of increase and decrease in Supply.
Changes in Supply continue till equilibrium is reached. To get more information on the changes in supply, visit Vedantu's website where you can get free study material, questions and solutions, and a lot more.
Did You Know?
Supply is very commonly associated with demand in Economics and forms a fundamental concept and principle of economics. Concepts of supply and demand in Modern Economics have been postulated by John Locke and also used by economist Adam Smith in his book 'An enquiry into the nature and causes of the wealth of nations' which was published in the year 1776.
Alfred Marshall, in 1890 popularised the use of demand and supply curve in his book 'principles of economics. The United Kingdom (then Britain) happens to be the first country that used the concepts of demand and supply as well as Economics in general.
Solved Examples
1. What is the change in supply?
Answer: Change in supply refers to an increase or decrease of supply at the same price, causing a rightward or leftward shift in the supply curve respectively.
FAQs on Supply Changes: Causes and Effects
1. What is meant by changes in supply?
Changes in supply for a commodity refers to the increase or decrease in the supply for the commodity at constant prices, and other factors remaining the same. Changes in supply cause a rightward or leftward shift in the supply curve due to an increase or decrease in the supply of a commodity, respectively.
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2. What are the factors affecting change in supply?
There are numerous factors affecting changes in supply that can directly or indirectly affect the supply of a commodity. Direct factors include changes in prices or supply of raw materials, or other factors of production, technological changes, and changes in competition in the market. Indirect factors include inflation or deflation in the market, changes in government policies, taxation laws and subsidies.
3. What is called a supply curve?
A supply curve is the graphical representation of changes in the supply of a commodity at different prices during a certain period.
4. Explain the increase in supply with example.
Increase in supply refers to the rise in the supply of a good or service at the same price or a rightward shift in the supply curve. Various factors cause an increase in supply. The decrease in the cost of production makes it cheaper for producers to produce, and thus, they increase their supply.
Technological advancement also increases efficiency and reduces the cost of production, thus making it cheaper for producers to produce. A decrease in taxes and increases in subsidies also cause an increase in supply. For example, if the cost of production of a shampoo decreases due to technological advancement, its supply would increase.
5. Explain the decrease in supply with an example.
Decrease in supply refers to the decrease in the supply of goods and services or the leftward shift in the supply curve. Various factors contribute to the decrease in supply.
When the cost of production of a commodity increases, it makes the production of the commodity more expensive, and this decreases the supply of that commodity.
When producers use old and outdated technology for production, this reduces their efficiency and causes an increase in the cost of production, leading to a decrease in supply.
An increase in taxes and a decrease in subsidies also increase the cost of production, causing a fall in supply. For example, if the production cost of a car increases, the supply would decrease.
