Changes in costs, technology, weather, the number of firms, and taxes or subsidies shift the supply curve.
The supply curve shifts when a non-price factor changes. An increase in supply shifts the curve right: more is supplied at every price. A decrease shifts it left.
Costs of production: if wages, rent or raw material prices rise, each unit costs more to make, so supply decreases. Productivity and technology: if workers or machines produce more per hour, costs fall and supply increases.
Weather and natural events matter for farming and fishing. A drought decreases the supply of crops. The number of firms matters too: more firms entering a market increases supply.
Government: an indirect tax, such as a tax on each unit sold, raises firms' costs and decreases supply. A subsidy to producers lowers costs and increases supply.
- Increase in supply
- Supply curve shifts right: more supplied at every price.
- Costs of production
- Higher costs decrease supply; lower costs increase it.
- Indirect tax
- Raises costs, so supply decreases.
- Producer subsidy
- Lowers costs, so supply increases.
Worked example: Classifying causes for a supply shift
A question asks what could shift the supply of electric scooters to the left.
- Rising cost: the price of lithium for batteries rises, so each scooter costs more to make.
- Fewer sellers: two scooter makers leave the market.
- Government: a new tax is placed on each scooter sold.
- In each case less is supplied at every price, so S shifts left.
Watch out for this
Higher wages make workers more productive, so supply increases.
Higher wages are a rise in costs, which decreases supply. Supply increases when productivity rises, so that each unit costs less to make.
Check your understanding
Which change would increase the supply of rice?
- Farmers start using a new, higher-yielding seed.
- Wages for farm workers rise.
- The government taxes each kilogram of rice sold.