Shift of Supply

Remember that the supply function was expressed, Qxs = fs (Px, Pinputs, Tech, regulations, # sellers,... S), change in the price of the good changes the quantity supplied. A change in any of the other variables will shift the supply function. An increase in supply can be visualized as a shift to the right, at each price a larger quantity is produced and offered for sale. A decrease in supply is a shift to the left; at each possible price a smaller quantity is offered for sale. If the supply shifts and demand remains constant, the equilibrium price and quantity will be altered.

An increase in supply (while demand is constant) will cause the equilibrium price to decrease and the equilibrium quantity to increase. A decrease in supply will result in an increase is the equilibrium price and a decrease in equilibrium quantity.

P_x

D S2 S

P2 S1

Ре E

P1

S D

0 Q₂ Qе Q₁ Q_x

Given the demand (D) and the supply (S), the equilibrium price in the market is Pe. The equilibrium quantity is Qe. An increase in supply is represented by a shift of supply from S to S1. This will cause and decrease in equilibrium price from Pe to P1 and an increase in equilibrium quantity from Qe to Q1. A decrease in supply to S2 will cause equilibrium price to increase to P2 and equilibrium quantity to fall to Q2.