The Non-Price Determinants of Supply
- There are several factors that will change the supply of a good/service, irrespective of the price level. Collectively these factors are called the non-price determinants of supply and include
- Changes to the costs of production
- Changes to indirect taxes and subsidies
- Changes to technology
- Changes to the number of firms
- Weather events
- Future price expectations
- Goods in joint and competitive supply
- Changes to any of the non-price determinants of supply shifts the entire supply curve (as opposed to a movement along the supply curve)
A graph that shows how changes to any of the non-price determinants of supply shifts the entire supply curve left or right, irrespective of the price level
- E.g. If a firm's cost of production increases due to the increase in price of a key resource, then there will be a decrease in supply as the firm can now only afford to produce fewer products
- This is a shift in supply from S to S1. The price remains unchanged at £7 but the supply has decreased from 10 to 2 units
- This is a shift in supply from S to S1. The price remains unchanged at £7 but the supply has decreased from 10 to 2 units
An Explanation of how each of the Non-Price Determinants of Supply Shifts the Entire Supply
Curve at Every Price Level
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Changes to costs of production (COP) |
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COP Decreases |
S increases, shifting right (S→S2) |
Indirect taxes |
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S decreases, shifting left (S→S1) |
Taxes Decrease |
S increases, shifting right (S→S2) |
Subsidies |
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S increases, shifting right (S→S2) |
Subsidy Decreases |
S decreases, shifting left (S→S1) |
New technology |
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S increases, shifting right (S→S2) |
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S decreases, shifting left (S→S1)) |
Change in the number of firms in the industry |
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S increases, shifting right (S→S2) |
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S decreases, shifting left (S→S1) |
Weather events |
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S decreases, shifting left (S→S1) |
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S increases, shifting right (S→S2) |
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Future price expectations |
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Expectations price will rise |
S Increases |
Expectations price will fall |
S Decreases |
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Goods in joint supply |
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Supply of one good rises |
S good A Increases Shifts Right |
Supply of the other good rises |
S good B Increases |
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Goods in competitive supply |
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Supply of one good rises |
S good A Increases Shifts Right |
Supply of the other good falls |
S Decreases |
Exam Tip
Several of the non-price determinants of supply change the costs of production. However, be sure to explain each condition as its own point before linking it to the cost of production e.g. a change in indirect taxation.
A common error by students is to explain that a subsidy (for example, £3,000 subsidy for each electric vehicle produced) shifts the demand curve for electric vehicles to the right. This is incorrect. The subsidy will shift the supply curve to the right. Then due to the lower price, there will be a movement along the demand curve (extension of quantity demanded) to create a new market equilibrium.
