Before talking about the change in supply or knowing the change in supply definition, we must first know what supply is. 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.
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.
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.
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.
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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.
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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.
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.
1. Explain the Increase in Supply with Example.
Answer: 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.
2. Explain the Decrease in Supply with Example.
Answer: 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.