Shifts In Supply

Businesses are constantly changing the mix of products and services they provide. What lies behind these changes in supply behavior?

When changes in factors other than a good’s own price affect the quantity supplied, we call these shifts in supply: Supply increases (or decreases) when the amount supplied increases (or decreases) at each market price.

As production costs fall. the supply of automobiles in- creases. At each price. producers will supply more auto- mobiles. and the supply curve therefore shifts to the right,’ (What would happen to the supply curve if Congress were to put a restrictive quota on automobile imports?)

When automobile prices change, producers change their production and quantity supplied. but the supply and the supply curve do not shift. By contrast. when other influences affecting supply change. supply changes and the supply curve shifts.

We can illustrate a shift in .supply for the automobile market. Supply would. increase if the introduction of cost-saving computerized design and manufacturing reduced the labor required to produce cars, if autoworkers took a pay cut, if there were lower production costs in Japan, or if the government repealed environmental regulations on the industry, Any of these elements would increase the supply of automobiles in the United States at each price. figure 3-6 illustrates an increase in the supply of automobiles.

To test your understanding of supply shifts, think about the following: What would happen to the world supply curve for oil if a revolution in Saudi Arabia led to declining oil production? What would happen to the supply curve for clothing if tariffs were slapped on Chinese imports into the United States? What happens to the supply curve for computers if Intel introduces a new computer chip that dramatically increases computing speeds?

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