Factors that Shift the Supply Curve


We list and explain three factors that shift a supply curve:

    Change in input costs: An increase in input costs shifts the supply curve to the left. A supplier combines raw materials, capital, and labor to produce the output. If a furniture maker has to pay more for lumber, then her profits decline, all else equal. The less attractive profit opportunities force the producer to cut output. Alternatively, car manufacturer may have to pay higher labor costs. The higher labor input costs reduces profits, all else equal. For a given price of a car, the manufacturer may trim output, shifting the supply curve to the left. Conversely, if input costs decline, firms respond by increasing output. The furniture manufacturer may increase production if lumber costs fall. Additionally, chicken farmers may boost chicken output if feed costs decline. The reduction in feed costs shifts the supply curve for chicken to the right.

    Increase in technology: An increase in technology shifts the supply curve to the right. A narrow definition of technology is a cost-reducing innovation. Technological progress allows firms to produce a given item at a lower cost. Computer prices, for example, have declined radically as technology has improved, lowering their cost of production. Advances in communications technology have lowered the telecommunications costs over time. With the advancement of technology, the supply curve for goods and services shifts to the right.

    Change in size of the industry: If the size of an industry grows, the supply curve shifts to the right. In short, as more firms enter a given industry, output increases even as the price remains steady. The fast-food industry, for example, exploded in the latter half of the twentieth century as more and more fast food chains entered the market. Additionally, on-line stock trading has increased as more firms have begun delivering that service. Conversely, the supply curve shifts to the left as the size of an industry shrinks. For example, the supply of manual typewriters declined dramatically in the 1990s as the number of producers dwindled.