Movements and Shifts
A movement in a supply curve
is a change in supply as a result of a change in price
In the example above an increase in price is reflected by a movement along the supply curve causing more to be supplied.
A shift in a supply curve is a change in supply for a reason other than a change in price.
In the illustration the supply curve has shifted to the right. This means that more is supplied at every price. I f the price was 5 Euros the quantity supplied has increased from 10 to 25.
There could be any of four reasons
Reduction in average costs of production
Subsidy on raw materials
Subsidy on labour
Improvements in technology
A shift to the left in which less will be supplied at every price could be caused by
Increase in average cost of production
Taxation of raw materials
A switch in production to a more lucrative option
A declin in demand for the product
Price – Output Relationship
When considering the price-output relationship,(or market forces relationship), the influence of demand curves come into play. Like supply curves the demand form also shift for a reason other than a change in price such as
A change in income
A change in the price of other goods, that is substitutes and complements
A change in taste due to advertising
Expectations of future price changes such as shares
In Example 1 the demand curves have shifted to the right, meaning a greater number is being demanded at every price. The effect will be for an increase in the quantity supplied from 200 to 300 at a higher price from £4 to £5.
In Example 2 the supply curve shifts to the right meaning that there is an increase in the amount of the product being supplied. The effect will be an increase in the quantity supplied from 50 to 60 but at a lower price from £20 to £15.