A supply curve is a graphical representation between the relationship between the price of a product—or the price of a good or service—and the quantity of such that a producer or more appropriately, a seller is willing and able to supply at that price. Nonetheless, supply shifters are factors or variables that cause a leftward or rightward shifts in the supply curve, thus changing the quantity of goods or services supplied at each price point.
It is important to note that there is a direct relationship between price and quantity supplied. Assuming that everything else remains the same, an increase in the price of a particular product would result in an increase in the quantity supplied for such product. However, there are other factors affecting supply. These non-price determinants of supply correspond to the examples of supply shifters, thus causing a change in the quantity supplied even if the price remains the same.
Examples of supply shifters: The factors affecting the quantity of supply
1. Costs of Production: The costs involved in the production or the price of inputs—also known as the price of factors of productions—such as raw materials, labor, and energy are prime examples of demand shifters. Specifically, these costs affect the capability of a seller to produce goods or provide services. Note that an increase in production costs may cause the supply curve to shift left. This is because such increase may reduce production output and thus, reducing supply.
2. Expectations of the Seller: Supply curves are based partly on seller expectations about future market conditions. If the seller believes that the demand for a particular product will increase in the foreseeable future, it would increase its production output and thereby, the quantity of supply due to anticipated market feasibility.
3. Technology and Innovation: Breakthroughs in technology or innovation can improve production efficiency in terms of time and cost, thus causing the supply curve for a particular product to shift right. However, as a factor affecting supply, technology or more appropriately, technological problems can affect costs and subsequently, the price and quantity of outputs.
4. Alternative Production: Another example of supply shifters is the opportunity from an alternative product. Note that producing one product could mean foregoing the production of another. If Product A seems more profitable and Product B is less attractive due to factors such as demand and cost, it is logical to pursue the former and forego the latter. The result would be a rightward shift in the supply curve for Product A and a leftward shift in the supply curve for Product B.
5. Number of Sellers: Competition or the number of sellers also affects the quantity of available supply in the market. To be specific, a change in the number of sellers changes the quantity of supply. More sellers mean more supplies, thus causing a rightward shift to the supply curve. Fewer sellers would reduce supplies, thereby causing a leftward shift to the supply curve.
6. Government Intervention: Government policies, such as supply-side economic or demand-side economic policy, and regulations can affect supply in numerous ways. For example, imposing a high tax on certain industries or sectors, or goods or services increases both the cost of production and the price of the product. The government can also regulate the production of certain goods or services through embargoes or economic incentives, thus negatively or positively affecting supply.
7. Calamities and Manmade Events: Natural calamities and manmade events are also examples of supply shifters. For instance, severe weather and insect infestations can reduce the supply of agricultural products. Civil unrest or military conflict can affect the operations of businesses and the overall viability of the economy, thus resulting in fewer production outputs. Economic sanctions or trade restrictions made by a government to another state can also affect the operation of businesses.
A note on the examples of demand shifters
Similar to supply shifters, demand shifters are non-price determinants of demand. These shifters are factors or variables that specifically cause leftward or rightward shifts in the demand curve, thus causing the demand to change even if the price remains the same. Examples of such shifters are income of consumers, the tastes or preferences of the consumers, the price of complements or substitutes, the size of the market, and expectation about the future.