The Law of Supply

Shifts in the Supply Curve

Certain factors will cause the supply curve to move on the graph. These factors can all be grouped as any factors which will cause businesses to supply a different quantity even though the selling price of the item has not changed. When these events happen, the entire supply curve will move either to the right or left.

• A change in the technological capabilities of a business
• Any natural events which affect our ability to produce certain things (such as the impact of a drought on wheat production)
• A change in the wages that are paid to workers
• Any fluctuation in the value of the Australian dollar
• A change in the rate of interest as set by the Reserve Bank of Australia
• A change in the productivity of Australian workers

For example, imagine that workers in Australia become more productive due to higher levels of education and better training programs whilst working. In this case, businesses would find that they can produce a higher quantity while using the same number of inputs. As a result, the overall cost per item will actually fall. This being the case, business owners will recognise that they can now make a higher profit on each item that they sell, encouraging a higher level of supply. As a result, the supply curve will shift to the right. We will supply a higher quantity even though the selling price has not changed. This can be represented on a graph as follows:

When supply “decreases”, this can be represented by shifting the supply curve to the left. This is referred to as a decrease in supply.

Current Page: Shifts in the Supply Curve 1 2 3 4 5 6

E-mail Mr Wood