A price change slides you along the curve
Definition
Movement along the supply curve: a change from one point on the curve to another point on the same curve, caused only by a change in the good's own price.
Extension of supply: a rise in quantity supplied after a rise in the good's own price, shown by sliding up the curve to the right.
Contraction of supply: a fall in quantity supplied after a fall in the good's own price, shown by sliding down the curve to the left.
- The curve does not move and the label S stays put; what moves is the point being read.
- Mark the two points A and B, and label P1, P2, Q1 and Q2 so the coordinates the firm moved between are visible.
- Note that supply extends when price rises, which is the opposite of demand, because the two curves slope in opposite directions.
A shift moves the whole curve sideways
Definition
Shift of supply: a move of the whole curve to a new position, caused by a change in something other than the good's own price, so a different quantity is supplied at every price.
- An increase in supply moves the whole curve to the right, so a larger quantity is supplied at every price.
- A decrease in supply moves it to the left, so a smaller quantity is supplied at every price.
- Draw the second curve as a complete line roughly parallel to the first, label the original S1 and the new one S2, and add an arrow showing which way it has gone.
Example
- The same dairy farm after fitting a new milking parlour: the schedule shows litres a day before and after the investment, with farmgate prices unchanged.
| Price per litre | Litres a day before | Litres a day after |
|---|---|---|
| 30p | 1,800 | 2,500 |
| 35p | 2,400 | 3,100 |
Step 1: at 30p, subtract the old quantity from the new one:
2,500−1,800=700 litres a day 2{,}500 - 1{,}800 = 700\text{ litres a day} 2,500−1,800=700 litres a dayStep 2: do the same at 35p:
3,100−2,400=700 litres a day 3{,}100 - 2{,}400 = 700\text{ litres a day} 3,100−2,400=700 litres a day- The farm offers 700 more litres a day at both prices with no price change, so the whole curve has shifted right from S1 to S2: an increase in supply.
One test decides which of the two to draw
- Find the change the question describes and ask whether it is the price of this good.
- If it is, slide along the existing curve and call it an extension or a contraction.
- If it is anything else, such as a cost, a tax or the weather, draw a second curve and call it an increase or a decrease in supply.
Common Mistake
- Do not shift the supply curve because the price of the good has changed, since that is a movement along it.
- Do not shift supply left when costs fall, because lower costs make production more profitable and move the curve right.
Exam technique
- Label both axes and the curve S before showing any change, because an unlabelled curve earns nothing.
- Read a shift at one fixed price and quote both quantities, such as 1,800 then 2,500 litres at 30p.
Self review
- What is the only cause of a movement along the supply curve?
- How is a decrease in supply shown on a diagram?
- Using the milking parlour figures, how many more litres a day were supplied at 35p after the investment?
- A tax is placed on a good. Is that a shift or a movement, and which way?
- Why does supply extend when price rises while demand extends when price falls?
