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What causes a supply curve to shift?

Changes in costs, technology, policy, seller numbers, weather and expectations can alter how much producers offer at every price.

Daniel Okafor

By Daniel Okafor · Business Editor

5 min read

A supply curve shifts when something other than the product’s own price changes how much producers will sell at every price. Lower costs, improved technology or more sellers can shift supply right; higher costs or production disruptions can shift it left, according to Khan Academy and Macmillan Learning.

A change in the product’s own price does not shift the curve. Under the law of supply, a higher market price leads firms to offer a larger quantity and a lower price leads them to offer less, which is movement along the existing curve, the Federal Reserve Bank of St. Louis explains.

Shift or movement? Use this test

First, ask whether the price of the good or service shown on the graph changed. If it did, the quantity supplied changes along the same curve.

If the product’s price did not change, ask whether the event changes producers’ costs, production conditions, number of sellers, rules or timing of sales at each possible price. If it does, it is a supply shift.

This follows the ceteris paribus assumption, meaning “other things being equal.” Khan Academy says a supply curve isolates the relationship between a product’s price and quantity supplied while other relevant conditions are held constant; a change in those conditions shifts the curve.

Six common causes of supply-curve shifts

  • Input and production costs. Labor, raw materials, energy and other inputs affect the cost of making a product. Khan Academy uses higher steel prices as an example: higher costs lead car makers to supply fewer cars at a given price, shifting supply left. Lower input costs tend to shift supply right.
  • Technology and productivity. A machine, process or technique that makes production faster or less costly allows firms to supply more at a given price. That shifts supply right, according to Investopedia and Khan Academy.
  • Government policy. Taxes can raise suppliers’ costs and reduce supply, while subsidies that cover some supply costs can increase it. Macmillan Learning lists government policy as a supply factor; regulations can have different effects depending on how they change costs or limit output.
  • The number of sellers. Entry by new producers increases market supply, while firms leaving a market reduces it, according to Investopedia and Tutor2u.
  • Natural conditions and disruptions. Drought, severe weather and disasters can reduce agricultural output or interrupt production, shifting supply left. Khan Academy says especially favorable weather can shift agricultural supply right.
  • Producer expectations. Expectations about future prices can affect when producers sell. Macmillan Learning lists expectations as a supply determinant; sellers expecting higher future prices may hold supply back now.

How to read the direction

  • Rightward shift, or increase in supply: producers offer more units at every given price. Cheaper inputs, cost-saving technology, subsidies, favorable weather and new firms entering a market can produce this result.
  • Leftward shift, or decrease in supply: producers offer fewer units at every given price. More expensive inputs, taxes, output constraints, adverse weather and firms exiting a market can produce this result.

“Right” and “left” describe the quantity supplied at each price. With demand unchanged, Investopedia says a rightward supply shift leads to a lower equilibrium price and higher equilibrium quantity, while a leftward shift leads to a higher equilibrium price and lower equilibrium quantity.

Example: cars and steel

Assume the market price of a car remains $30,000, but the price of steel rises. Building each car costs more, so manufacturers earn less per car at that selling price and are willing to supply fewer cars. The supply curve shifts left, following Khan Academy’s car-and-steel example.

By contrast, if the price of the car itself rises while steel prices, technology and other conditions remain unchanged, manufacturers move up the existing supply curve and offer more cars. The curve has not shifted.

A usable rule for supply-curve questions

  1. Identify the product whose supply curve is shown.
  2. Separate a change in that product’s own price from every other change.
  3. For another change, decide whether it raises or lowers costs, expands or restricts production, changes the number of sellers, or changes the timing of sales.
  4. If producers would sell more at each price, draw a rightward shift. If they would sell less at each price, draw a leftward shift.
  5. Then use demand to assess the new market equilibrium.

Frequently asked questions

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

A change in supply shifts the entire curve because a non-price factor changes how much producers offer at every price. A change in quantity supplied is movement along the existing curve caused by a change in the product’s own price, with other relevant conditions held constant.

What shifts a supply curve to the right?

A rightward shift means more is supplied at every price. Causes can include lower input costs, cost-saving technology, subsidies, more firms in the market and favorable weather for agricultural products.

How do taxes and subsidies affect supply curves?

Taxes can raise the cost of supplying a product and reduce supply. Subsidies that cover some supply costs can increase supply. The effect of a regulation depends on how it changes production costs or output limits.

What happens to equilibrium when supply shifts right?

If demand remains unchanged, a rightward supply shift leads to a lower equilibrium price and a higher equilibrium quantity, according to Investopedia.

Sources