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Study notes

Shifts in Market Supply

  • Levels: GCSE, AS, A Level
  • Exam boards: AQA, Edexcel, OCR, IB, Eduqas, WJEC

The supply curve can shift position

If the supply curve shifts to the right, this is an increase in supply; more is provided for sale at each price

If the supply curve moves inwards, there is a decrease in supply meaning that less will be supplied at each price

Make sure that you understand the key factors that can bring about a shift in the supply curve for a product in a market

Market Supply Revision Video
Outward shift of supply
Inward shift of market supply
  • 1.Changes in the costs of production
  • Lower costs of production mean that a business can supply more at each price. For example a magazine publisher might see a reduction in the cost of its imported paper and inks. These cost savings can then be passed through the supply chain to wholesalers and retailers and may result in lower market prices for consumers.
  • If the costs of production increase, for example following a rise in the price of raw materials or a firm having to pay higher wages to its workers, then businesses cannot supply as much at the same price and this will cause an inward shift of the supply curve.
  • A fall in the exchange rate causes an increase in the prices of imported components and raw materials and will lead to a decrease in supply. For example if the pounds falls 10% against the Euro, it becomes more expensive for British car manufacturers to import their rubber and glass from Western European suppliers, and higher prices for paints imported from Eastern Europe.
  • 2.Changes in technology
  • Production technologies can change quickly and in industries where change is rapid we see increases in supply and lower prices for the consumer.
  • 3.Government taxes and subsidies and regulations
  • Indirect taxes cause an increase in production costs - an inward shift of supply
  • Subsidies bring about a fall in supply costs – an outward shift of supply
  • Regulations increase production costs – an inward shift of supply
  • 4.Changes in climate in agricultural industries
  • For commodities such as coffee, oranges and wheat, the effect of climatic conditions can exert a great influence on market supply.
  • Favourable weather will produce a bumper harvest and will increase supply. (An outward shift)
  • Unfavourable weather conditions including the effects of drought will lead to a poorer harvest, lower yields and therefore a decrease in supply (inward shift)
  • Because commodities are often used as ingredients in the production of other products, a change in the supply of one can affect the supply and price of another product. Higher coffee prices for example can lead to an increase in the price of coffee-flavoured cakes.
  • 5.Change in the prices of a substitute in production
  • A substitute in production is a product that could have been supplied using the same resources. If cocoa prices rise for example this may cause some farmers to switch from other crops and invest money in establishing new cocoa plantations.
  • 6.The number of producers in the market and their objectives
  • The number of sellers in an industry affects market supply
  • When new businesses enter a market, supply increases causing downward pressure on price. If the existing businesses decide to move away from maximising their profits towards seeking a higher share of the market, then total supply available at each price will increase – the market supply curve will shift outwards.

Key summary

Factors that will cause an outward shift of a market supply curve i.e. an increase in supply

  1. The entry of new producers into the market
  2. A government subsidy to cover some of the supply costs of firms
  3. A fall in the world price of imported components and raw materials
  4. A reduction in the size of an indirect tax on producers
  5. An improvement in labour productivity which lowers unit labour costs

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