Chapter 4

Movements along the supply curve are caused by changes in the price of the good itself. A movement along the supply curve is called a "change in the quantity supplied". To see such a movement, take the figure on the left. In this figure, the increase in price from $2 to $5 causes an increase in the quantity supplied from 30 to 60 as illustrated by the arrow in the figure. What is most important about the figure is that this movement along the supply curve has been caused by a change in the price of the good.

When any relevant factor other than the price of the good changes, the supply curve shifts. Shifts in the supply curve are called "changes in supply". The general rule about shifts is

  • If supply increases, the supply curve shifts rightward
  • If supply decreases, the supply curve shifts leftward


The same rules apply to the demand curve; if demand increases, the demand curve shifts rightward and if demand decreases, the demand curve shifts leftward.

The figure on the right illustrates a decrease in supply. The supply curve shifts leftward from the initial supply curve (the blue curve S1) to the new supply curve (the red curve S2).

What can cause supply to change? That is, what can cause the supply curve to shift? There are five factors that cause supply to change. These factors are listed below and are explained on pages 75 and 76 of the text book. You MUST memorize this list or else your fate will be dire.

CHANGES IN SUPPLY (SHIFTS IN THE SUPPLY CURVE) ARE CAUSED BY CHANGES IN:

  1. Prices of Factors of Production
  2. Prices of Related Goods
    1. Substitutes in production
    2. Complements in production
  3. Expected Future Prices
  4. Number of Suppliers
  5. Technology

If you want to go beyond the textbook about the difference between shifts in supply and movements along the supply curve, you can check out the "Walkman Watch" in Chapter 4 of Economics In Action and carefully study "Learning Challenges" on page 40 of the Study Guide.


A-plus Tips

In order to be SURE that you understand the list and are totally ready for your exam, you can use the Study Guide and Economics in Action to test yourself. In the Study Guide, use True or False question 12; Multiple Choice questions 10, 11, and 12. In the Economics in Action, answer Multiple Choice questions 6 through 10 in the Multiple Choice Quiz of Chapter 4. Don't miss getting Multiple Choice questions 11 and 12 correct. To be well prepared and have a solid understanding of this crucial issue, you ought to miss none of these questions.

Would you like to study another chapter or study demand?