Question

What is the difference between a change in supply and a change in quantity supplied?

Short answer

A change in supply involves a shift in the supply curve due to non-price factors and results in a new supply curve. But a change in quantity supplied is a movement along the same supply curve due to changes in prices only.

Step-by-step solution

Definition of a Change in Supply

A change in supply refers to a shift of the supply curve due to reasons other than price change. Factors such as production costs, technology, and seller expectations can cause this. The outcome is a new supply curve.

Definition of Change in Quantity Supplied

A change in quantity supplied refers to a movement along the same supply curve due to price variations. Here, the supplier makes changes in the quantity of the good provided because of price fluctuations. The supply curve remains the same.

Comparison of the Two

While a change in supply involves shifting of the entire supply curve and is caused by factors other than price change, a change in quantity supplied is a movement along the same supply curve and arises only due to variations in price.

Key concepts

Supply Curve

The supply curve is a visual representation of the relationship between the price of a good and the quantity sellers are willing to supply. The curve is typically upward sloping, meaning as the price increases, so does the quantity supplied. This is because higher prices make it more attractive for sellers to supply more goods.

• Movement along the supply curve happens when there is a change in the price of the good itself, leading to a change in quantity supplied.
• A shift of the supply curve indicates a change in supply, influenced by factors other than the price, like production costs, technology, and expectations.

Understanding these movements and shifts is crucial to distinguish between changes in quantity supplied and changes in supply.

Production Costs

Production costs are the expenses businesses incur to produce goods or services. They include raw materials, labor, and overheads. Decreases in production costs typically lead to an increase in supply. This shifts the supply curve to the right, meaning more goods can be produced and offered at each price level. Conversely, increased production costs can decrease supply, shifting the curve to the left.

• Raw material prices: A fall in prices can lower production costs and increase supply.
• Wages and labor costs: If labor costs decrease, firms can supply more at the same prices.

Businesses continuously strive to manage and reduce production costs to remain competitive and profitable.

Technology

Technology plays a significant role in the supply of goods. Technological advancements often lead to more efficient production processes. This reduces the cost of production and can result in an increased supply of goods. When technology improves, the supply curve shifts to the right.

• Automation: Automation in factories can lead to faster production with fewer errors, increasing supply.
• Innovation: New technologies can enable producers to create new or improved products.

Technology's impact on supply is crucial as it can significantly alter market dynamics by changing how resources are used.

Seller Expectations

Seller expectations involve the projections and assumptions producers hold about the future. These expectations can affect their current supply of goods. If sellers expect the price of their product to rise in the future, they may reduce supply now to benefit from higher future prices, shifting the supply curve to the left.

• Price expectations: High expectations might lead to withholding supply in the present.
• Economic forecasts: Predictions about the economy can affect production decisions.

Understanding how seller expectations influence supply helps in predicting market behavior and planning strategic business actions.