2.2.5 Movements along and shifts of the supply curve Notes

In the previous section we discussed how price and non-price determinants of supply have different effects on the supply curve:

1. Price causes movements along the curve
2. Non-price determinants causes shifts of the curve

Movements

A movement along the supply curve occurs when the price of the good or service changes, and this change affects the quantity supplied.

The figure above shows the supply curve of Firm currently producing $Q_1$ of some good $X$ a price of $P_1$.

1. If the price rises to $P_2$, the quantity supplied increases to $Q_2$, resulting in an expansion of supply.
2. This causes a movement along the curve from the point $A$ to the point $B$.
3. Conversely, if the price falls to $P_3$, the quantity supplied decreases to $Q_3$, resulting in a contraction of supply.
4. This causes a movement along the curve from the point $A$ to the point $C$.

Shifts

A shift of the supply curve, on the other hand, occurs when a non-price determinant of supply changes, altering the supply of the good or service at every price level.

The figure above shows the supply curves of a Firm. Initially the supply curve of the firm is $S_1$ and it operates at a price $P_1$ with quantity $Q_3$.

1. If the supply of the firm increases (due to any non-price determinant) for the same given price, then the curve shifts to the right.
2. This can be seen from the shift of $S_1$ to $S_2$ where the new point $B$ has the same price $P_1$ but a higher quantity $Q_2$.
3. Similarly, if the supply of the firm decreases for the same given price, then the curve shifts to the left.
4. This can be seen from the shift of $S_1$ to $S_3$ where the new point $C$ has the same price $P_1$ but a lower quantity $Q_3$.