IGCSEEconomicsEdexcelRevision NotesThe Market SystemDemand, Supply & Market EquilibriumFactors that Shift the Supply Curve

Factors that Shift the Supply Curve (Edexcel IGCSE Economics): Revision Note

Exam code: 4EC1

Lorraine

Written by: Lorraine

Reviewed by: Steve Vorster

Updated on

Shifts of the Entire Supply Curve

  • 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

  • Changes to any of the non-price determinants of supply shift the entire supply curve (as opposed to a movement along the supply curve)

Diagram: Shifts of the Supply Curve

Changes to any of the conditions of supply shifts the entire supply curve left or right, irrespective of the price level

Changes to any of the non-price determinants of supply shift the entire supply curve left or right, irrespective of the price level

  • For example, 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

An Explanation of each of the Non-price Determinants of Supply

Determinant

Explanation

Determinant Increases

Determinant Decreases

Costs of
production
(COP)

  • If the price of raw materials or other
    costs of production change, firms respond by changing supply

  • COP increases

  • S decreases, shifting left
    (S → S1)

  • COP
    decreases

  • S increases, shifting right
    (S → S2)

Changes in technology

  • New technology increases productivity and lowers production costs. Ageing technology can have the opposite effect

  • Technology increases

  • S increases, shifting right
    (S → S2)

  • Technology decreases

  • S decreases, shifting left
    (S → S1)

Indirect taxes

  • Any changes to indirect taxes change the cost of production for a firm and impact supply

  • Taxes increase

  • S decreases, shifting left
    (S → S1)

  • Taxes decrease

  • S increases, shifting right
    (S → S2)

Subsidies

  • Changes to producer subsidies directly impact the cost of production for the firm

  • Subsidy increases

  • S increases, shifting right
    (S → S2)

  • Subsidy decreases

  • S decreases, shifting left
    (S → S1)

Change in the number of firms in the industry

  • The entry and exit of firms into the market has a direct impact on supply. If ten new firms start selling building materials in Hanoi, the supply of building material will increase

  • No. of firms increases

  • S increases, shifting right
    (S → S2)

  • No. of firms decreases

  • S decreases, shifting left
    (S → S1)

Natural factors

  • Droughts or flooding can cause a supply shock in agricultural markets. A drought will cause supply to decrease. Unexpectedly good growing conditions can cause supply to increase.

  • Drought occurs

  • S decreases, shifting left
    (S → S1)

  • Good weather

  • S increases, shifting right
    (S → S2)

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    Author
    Reviewer
    Lorraine

    Author: Lorraine

    Expertise: Economics Content Creator

    Lorraine brings over 12 years of dedicated teaching experience to the realm of Leaving Cert and IBDP Economics. Having served as the Head of Department in both Dublin and Milan, Lorraine has demonstrated exceptional leadership skills and a commitment to academic excellence. Lorraine has extended her expertise to private tuition, positively impacting students across Ireland. Lorraine stands out for her innovative teaching methods, often incorporating graphic organisers and technology to create dynamic and engaging classroom environments.

    Steve Vorster

    Reviewer: Steve Vorster

    Expertise: Economics & Business Subject Lead

    Steve has taught A Level, GCSE, IGCSE Business and Economics - as well as IBDP Economics and Business Management. He is an IBDP Examiner and IGCSE textbook author. His students regularly achieve 90-100% in their final exams. Steve has been the Assistant Head of Sixth Form for a school in Devon, and Head of Economics at the world's largest International school in Singapore. He loves to create resources which speed up student learning and are easily accessible by all.