Simple Economics on the Web
Your handy guide to economics
Supply curves tell us how many units of a product producers are willing to sell at different prices. The typical supply curve slopes up: As the price rises, the quantity supplied increases rises. This is called a Movement Along the Supply Curve.
The quantity supplied can also be driven by factors other than price. One example is the price of product inputs. A second example is a change in technology which may be more efficient than the current technology. As with the demand curve, we draw a supply curve – a two variable relationship between quantity supplied and price – by holding input costs and technology constant. When one or more of these other variables changes, the whole price-quantity relationship moves. This is called a Shift in the Supply Curve Curve.
Use the first two bars on the right to see examples of how these “other” variables shift a supply curve.
Again, as with demand, it is often important to know by how much supply increases as price falls – i.e. the sensitivity of supply to price. At one extreme, you can imagine purchasing as many fast food hamburgers as you can stomach without any change in price – i.e. the supply curve is very flat or elastic. At the other extreme, the number of square feet of office space in the Empire State Building is a fixed quantity and it will not increase no matter how high the rents go.
Use the third bar on the right to see how changing elasticity alters the position of the supply curve.