What this lesson teaches
I can show how non-price factors shift a demand or supply curve and name those factors.
Syllabus 9570, 2.1.2(d). Demand and Supply Analysis and its Applications: Changes in non-price determinants and how they cause shifts in the demand/supply curve
Make a guess
The price of bread rises because more people want bread. Has the supply of bread increased?
- No. Quantity supplied rose along the same supply curve.
- Yes. Bakers are making more bread, so supply is higher.
- No. Supply fell, because bakers ran short of bread at the old price.
Show the answer
No. Quantity supplied rose along the same supply curve.
A higher price makes bakers offer more, which is a movement along supply. Supply only shifts when costs, technology or other non-price factors change.
Costs, technology, the number of sellers and taxes or subsidies shift supply.
Supply shifts when something other than the good's own price changes how much sellers are willing and able to offer.
Costs of production are the most common cause. Higher wages, rents, electricity or ingredient costs make each unit dearer to produce, so supply shifts left.
Better technology does the opposite. If firms can produce more with the same inputs, supply shifts right.
The number of sellers, indirect taxes, subsidies and events like bad weather or disease also shift supply. In 2022, Malaysia's ban on chicken exports cut the supply of fresh chicken to Singapore.
- Costs
- Higher costs shift supply left.
- Technology
- Better technology shifts supply right.
- Others
- Number of sellers, taxes, subsidies, weather and disease.
Common supply shifters
Input costs
Wages, rent, electricity, ingredients. Higher costs shift supply left.
Technology
Producing more with the same inputs shifts supply right.
Government
An indirect tax shifts supply left; a subsidy shifts it right.
Nature
Weather and disease can cut farm supply suddenly.
Worked example: Rising costs at a bakery
Electricity tariffs rise, and bakeries use a lot of power for their ovens. Later, some bakeries buy new ovens that use less electricity per loaf.
- Higher electricity costs raise the cost of each loaf, so bread supply shifts left.
- The new ovens lower the cost of each loaf, so supply shifts back to the right.
- The overall effect depends on which change is bigger. The price of bread itself does not shift supply; it moves sellers along the curve.
Watch out for this
The price of bread rose, so bread supply rose.
A higher price moves sellers along the supply curve (quantity supplied rises). Supply itself only shifts when costs, technology or other supply factors change.
Check your understanding
The government gives a subsidy to local vegetable farms for each kilogram they grow. What happens to supply?
- It shifts right, because each kilogram now costs farms less to grow and sell.
- It shifts left, because farms come to rely on the government and grow less.
- It stays the same, because the price of vegetables has not changed.
Show the answer
It shifts right, because each kilogram now costs farms less to grow and sell.
Right. A subsidy lowers the effective cost per unit, so farms offer more at every price.