IB Economics 2.2.5 Movements Along and Shifts of the Supply Curve Notes

Movements Along the Supply Curve: A Response to Price

1. A movement along the supply curve happens when the good's own price changes, which changes the quantity supplied
2. Price sits on the vertical axis, so its own price change moves you along the same curve.
3. The curve itself does not move, because nothing about how much firms will offer at each price has changed.
4. Start at point A, at price $P_1$.
5. When the price rises to $P_2$, the firm moves up the curve to B and supplies more, because a higher price makes extra output profitable.
6. When the price falls to $P_3$, the firm moves down the curve to C and supplies less, because at a lower price fewer units cover their rising marginal cost.
7. Every one of these is a movement along the curve, not a shift, because only the good's own price changed.

Shifts of the Supply Curve: A Change in Supply

1. A shift of the supply curve happens when a non-price determinant changes, altering how much firms supply at every price, so the whole curve moves.
2. You read a shift at a fixed price: hold the price steady and compare the quantity on the old curve with the quantity on the new one.
3. Start on $S_1$ at price $P_1$ (point A).
4. When a non-price determinant raises supply, the whole curve shifts right to $S_2$, so at the same $P_1$ the quantity rises to point B.
5. A fall in production costs, a rise in a subsidy, or a higher price for a good in joint supply all shift it this way.
6. When a non-price determinant lowers supply, the curve shifts left to $S_2$, so at the same $P_1$ the quantity falls to point C.
   1. A rise in production costs, a higher tax, or a higher price for a good in competitive supply all shift it this way.