Factors that Shift the Supply Curve (Edexcel IGCSE Economics)
Exam board Pearson Edexcel · IGCSEUpdated 2024-04-30
Shifts Of The Entire Supply Curve
Spec point —
1.1.3e
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There are several factors that will change the supply of a good/service, irrespective of the price level
- Collectively, these factors are called the non-price determinants of supply
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Changes to any of the non-price determinants of supply shift the entire supply curve (as opposed to a movement along the supply curve)
Diagram: Shifts of the Supply Curve
Changes to any of the non-price determinants of supply shift the entire supply curve left or right, irrespective of the price level
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For example, if a firm's cost of production increases due to the increase in price of a key resource, then there will be a decrease in supply as the firm can now only afford to produce fewer products
- This is a shift in supply from S to S1. The price remains unchanged at £7 but the supply has decreased from 10 to 2 units
An Explanation of each of the Non-price Determinants of Supply
| Determinant | Explanation | Determinant Increases | Determinant Decreases |
|---|---|---|---|
| Costs of production (COP) | - If the price of raw materials or other costs of production change, firms respond by changing supply | - COP increases - S decreases, shifting left (S → S1) | - COP decreases - S increases, shifting right (S → S2) |
| Changes in technology | - New technology increases productivity and lowers production costs. Ageing technology can have the opposite effect | - Technology increases - S increases, shifting right (S → S2) | - Technology decreases - S decreases, shifting left (S → S1) |
| Indirect taxes | - Any changes to indirect taxes change the **cost of production **for a firm and impact supply | - Taxes increase - S decreases, shifting left (S → S1) | - Taxes decrease - S increases, shifting right (S → S2) |
| Subsidies | - Changes to producer subsidies directly impact the cost of production for the firm | - Subsidy increases - S increases, shifting right (S → S2) | - Subsidy decreases - S decreases, shifting left (S → S1) |
| Change in the number of firms in the industry | - The entry and exit of firms into the market has a direct impact on supply. If ten new firms start selling building materials in Hanoi, the supply of building material will increase | - No. of firms increases - S increases, shifting right (S → S2) | - No. of firms decreases - S decreases, shifting left (S → S1) |
| **Natural factors ** | - Droughts or flooding can cause a supply shock in agricultural markets. A drought will cause supply to decrease. Unexpectedly good growing conditions can cause supply to increase. | - Drought occurs - S decreases, shifting left (S → S1) | - Good weather - S increases, shifting right (S → S2) |
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