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Supply » Movements Along and Shifts of the Supply Curve

What you'll learn this session

Study time: 30 minutes

Cambridge spec: 2.3.2, 2.3.3

Tell the difference between a movement along the supply curve and a shift of the whole curve
Use the correct words: extension and contraction, increase and decrease
Explain the causes of a shift: costs, technology, taxes and subsidies, weather, number of firms and other goods
Describe how to draw each diagram in the exam

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Two different things can happen to supply

Rows of busy sewing machines: if this factory's wages or material costs change, the whole supply curve shifts

Last lesson you drew a supply curve. It shows what producers plan to sell at each price over a given period, such as one week. But producers' plans can change in two different ways, and the exam expects you to name them correctly. A made-up firm in the country of Beltara makes phone cases. Here is its supply schedule.

Price per case ($)	Quantity supplied per week
2	20
4	40
6	60
8	80
10	100

Two very different things might happen:

The market price rises from $6 to $8, and the firm plans to supply 80 cases instead of 60.
The firm buys a faster machine. Now, at the same $6 price, it plans to supply 90 cases.

In the first case, the firm has reacted to a new price. In the second, something else has changed its plans.

Key terms:

Extension in supply: a rise in the quantity supplied caused by a rise in the good's own price. It is a movement up along the supply curve.
Contraction in supply: a fall in the quantity supplied caused by a fall in the good's own price. It is a movement down along the supply curve.
Increase in supply: more is supplied at every price, caused by something other than the good's own price. The whole supply curve shifts to the right.
Decrease in supply: less is supplied at every price, caused by something other than the good's own price. The whole supply curve shifts to the left.

Movements along the curve: extension and contraction

There is only one cause of an extension or a contraction: a change in the price of the good itself. Nothing else moves you along the curve.

Back to Beltara. When the price rises from $6 to $8, the quantity supplied rises from 60 to 80. That is an extension. If the price falls from $8 back to $6, the quantity supplied falls from 80 to 60. That is a contraction.

In the exam, to draw a movement along a supply curve:

Label the vertical axis Price and the horizontal axis Quantity.
Draw an upward-sloping line and label it S.
Mark the old price on the vertical axis, then read across to the curve and down to the quantity axis. Label them P1 and Q1.
Mark the new price and do the same to get P2 and Q2.
Draw an arrow along the same curve. For a rise in price the arrow points up and to the right. For a fall in price it points down and to the left.

There is only one curve in this diagram. The curve itself does not move.

Shifts of the curve: increase and decrease

When something other than the good's own price changes, producers plan to supply a different quantity at every price. That moves the whole curve.

In the exam, to draw a shift:

Draw and label the axes and the original curve S1.
Draw a second curve of the same shape. Label it S2.
For an increase, S2 sits to the right of S1, because more is supplied at each price.
For a decrease, S2 sits to the left of S1, because less is supplied at each price.
Add a small arrow between the curves to show the direction of the shift.

The faster machine in Beltara moves the curve to the right. At $6 the quantity supplied rises from 60 to 90 cases, and more is supplied at every other price too.

What causes a shift?

New technology like this harvester lets farmers grow more at every price - that's an increase in supply, a shift to the right

👷 Costs of production

Costs include wages and the price of raw materials. If costs fall, production is more profitable, so supply increases. If costs rise, supply decreases. A rise in the wages of a clothing factory's workers is a cost rise.

🤖 Technology

Better machines and methods let firms make more output from the same resources, often at a lower cost. Supply increases.

💲 Indirect taxes and subsidies

An indirect tax, such as a tax on each unit sold, raises a firm's costs, so supply decreases. A subsidy is money paid to producers. It lowers their costs, so supply increases. You will study these as government policy later.

🌪 Weather and natural events

Good weather can give a big harvest, so the supply of crops increases. Drought, floods and storms can destroy crops or damage factories, so supply decreases.

🏢 Number of firms

More firms in the market means more is supplied at every price, so market supply increases. If firms leave, market supply decreases.

🔄 Prices of other goods

A firm can often make a different good with the same resources. A made-up factory that can make bicycles or scooters will switch to scooters if the price of scooters rises. The supply of bicycles decreases.

The vocabulary trap

Many students lose marks by mixing up the four words. Use this table.

What happens	Cause	Name	On the diagram
Quantity supplied rises	The good's own price rises	Extension	Move up along the same curve
Quantity supplied falls	The good's own price falls	Contraction	Move down along the same curve
Supply rises at every price	Lower costs, technology, subsidy, good weather, more firms	Increase	Curve shifts right
Supply falls at every price	Higher costs, indirect tax, bad weather, fewer firms	Decrease	Curve shifts left

Remember, the demand curve moves in the same two ways, with the same four words, but the causes are different.

Worked example

A made-up farm in Selmar grows rice. A flood destroys part of the crop, so the farm can supply less rice at every price. Step 1: the cause is a natural event, not the price of rice. Step 2: so this is a shift, not a movement. Step 3: less is supplied at every price, so it is a decrease in supply, and S1 shifts left to S2.

Common mistakes

1. Saying a rise in price causes an "increase in supply". It causes an extension in supply. 2. Shifting the curve when only the good's own price has changed. 3. Shifting the curve the wrong way: lower costs move it right, higher costs move it left. 4. Forgetting to label the axes or the curves S1 and S2.

Exam-style question

In the made-up country of Kovia, many farmers grow wheat. This year a drought reduces the harvest. At the same time, the price of fertiliser, which farmers use to grow wheat, falls. The price of wheat itself stays the same.

(a) State two factors, other than the price of wheat, that can change the supply of wheat. [2 marks]

(b) Explain why the fall in the price of fertiliser may increase the supply of wheat. [3 marks]

Model answer

(a) Any two from: costs of production, such as wages or raw materials (1); technology (1); indirect taxes or subsidies (1); weather and natural events (1); number of firms (1); prices of other goods the firm could make (1).

(b) Fertiliser is a cost of producing wheat (1). When it gets cheaper, the cost of production falls and growing wheat becomes more profitable (1). So farmers plan to supply more wheat at every price (1).

(c) The drought is a natural event that reduces the harvest (1). The price of wheat has not changed, so this is a shift of the curve, not a movement along it (1). Draw Price on the vertical axis and Quantity on the horizontal axis, with an upward-sloping curve S1 (1). Draw S2 to the left of S1 (1). This is a decrease in supply: less is supplied at every price (1).

Exam tip

In part (c), the price of wheat does not change. Say so clearly, then draw a new curve S2 to the left of S1. If you draw an arrow along S1, you lose marks.

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