HL Economics

Chapter 2: Competitive Markets: Demand and Supply

1) Explain the difference between a movement along the supply curve and a shift in the supply curve. 

Supply is the “quantity of goods that producers will produce and sell at a given price over a particular time period.” With a supply curve, the relationship between the price of the good and the quantity of goods the producers will produce according to that price is apparent.

The movement in the supply curve is caused only by a change in the product price in a fixed supply curve, which results to an increase in quantity supplied. The price follows the quantity that is supplied. In the graph above, it displays the situation when the supply decreases in supply, so does the quantity. As the price of the product decreases, the producers will want to supply less because they would not make much profit out of these low priced products and so the curve will lengthen downwards. When the price of the product increase, the producers will supply more of the product because of the high income they will receive and the curve will lengthen upwards.

As for the shift, it is resulted as there is a change in non-price determinants of supply. When there is a reduction in supply, the curve will shift to the left, and with an increase in supply, the curve will shift to the right. In the graph above, it shows an example of a shift in the supply curve for both the increase in supply (shift to the right) and decrease in supply (shift to the left). These non-price determinants of supply include: costs of production, productivity, government intervention, price of related goods, and supply shock.

In the production cost is connected to the ability of a firm to produce the products and so they will increase supply of products that have a high price on them, to get a profit. The productivity is the amount of output per unit of input. Government intervention is is when the government becomes involved by making decisions to the economics questions. Price of related goods is when the producers substitute the product with another product that is more likely to bring a higher profit. Lastly, the supply shock is a random event that could intervene the original supply of the products.

Thus, the main difference we see visually is  a movement occurs throughout the same line yet in a shift, a whole new curve is produced either to the left or right of the original curve. Movement occurs when the price of the supply changes, as for the shift, when there is a change in the non-price determinants of supply.

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