Change in Supply vs Change in Quantity Supplied. Overview and Explanation

In this article, we're going to discuss the difference between a change in supply and a change in quantity supplied they sound similar but they're different. So when there's a change in price, the price of a good or service goes up or down that's going to lead to a change in the quantity supplied which is a movement along the supply curve. Let me show you for example so let's say we've got our graph here

This is the upward-sloping supply curve we call that S1. If there's a change in the price of whatever this good is we're just going to move from one point along the supply curve to another point along the supply curve. We're not going to draw a whole new supply curve. However, if there's a change in something other than price, let's say there's an earthquake that affects the supply of the good or there's a change in the price of factors of production or there's a new technology that increases supply then we're going to have a change in supply, not just the quantity supplied. To change in supply is going to require a whole new curve.

We're going to have a shift in the supply curve. So let's say, for example, there was an increase in supply then the supply curve is going to shift to the right and we're going to have a whole new curve and we'll call that S2, conversely if there was a decrease in supply we would have a shift to the left. 

So I want to show you an example it'll make it a little bit easier to understand. So let's say that we have a situation where we have a supply schedule here where we can look at each different price. Let's say this is the market for coffee, let's say that the price is dollars per pound or something like that and the quantity supplied is millions of pounds of coffee. So at $1 per pound producers are willing to supply 3 million pounds of coffee and so forth, so we've got our supply curve.

Now if I were to ask you what would happen if the price decreased? What would happen if the price went decreased from $5 to $3. Now what we can see is that there's going to be a change in the quantity supplied of 15 to 9. So it's going to go from fifteen at five dollars a pound, the producers were willing to supply fifteen million pounds but now the price is fallen they're only willing to supply nine million.

We can go and look at our graph, If you just map that out we end up right here. So we have moved along the curve, we haven't drawn a new curve we just moved along the curve because there was a change in the price holding everything else constant. We're assuming nothing changed except the price. 

Now let's pretend that something else happened that completely changed supplies, not just the price. Let's say that it was the weather and let's say there was a hurricane or tsunami or something that happened and it wiped out coffee plantations in Costa Rica. So if it wiped out a bunch of coffee plantations then we're going to see a decrease in the supply of coffee. There's going to be a decrease in the supply because we have this natural disaster came and wiped out a bunch of coffee plantations. So this does not have to do with the price. Now I might have an effect on the price and we'll talk about that. We need a new supply curve and so here's our new supply schedule.

This is the new quantity supplied up here was the old this was before the natural disaster so I've just got that this is a supply curve before the natural disaster so our new supply curve is going to look like this and if you see for example at a price of one the quantity supplied is zero right so we would end up that point would be right here and so that corresponds to our supply schedule but now I'll call this s2 and you see that we have shifted to the left.

So notice a change in quantity supplied as we're moving along the curve we're not drawing a new curve however we have a change in supply we are actually shifting the curve. We're moving in because at each price the quantity the producers are willing to supply at that price is now different than before. So before at a price of $1 quantity supplied was three, now at a price of $1 quantity supplied is zero. For each price now there is a new quantity supplied so we need a whole new curve. 

Now if you were to ask "Well, what is going to happen now to the price of coffee?" So to know that we would need to draw a demand curve. We will draw just a generic downward sloping demand curve. Now our original equilibrium is S1 and D where they intersect which is E1. So that's our original equilibrium and we're given the equilibrium price and quantity they are Q1 and P1.

Now our new equilibrium is going to be right here where S2 the new supply curve intersects with the demand curve and now we're going to have Q2 and we're going to have P2. So you see that the price has increased and the quantity has decreased. It makes sense, if a bunch of coffee plantations is wiped out that's going to decrease the supply of coffee there's going to be less coffee and it's going to get more expensive. Now again this price effect is different from when I said no price is leading to a change in supply. I'm not saying that a change in supply has no effect on the price, I'm saying that when we think about whether there's a change in quantity supplied or a change in supply what we're thinking about is what is leading to this change that we're asking about. So in the first example, I just asked you what happened if the price decrease from five to three. 

We just move along our curve because that's what one thing happened was price changed and I asked you what happened to supply so there's a change in quantity supplied. However, in the second example, something other than price changed it was the weather and so the weather decreased the supply. Now because it decreases supply and we drew a new supply curve we're able to see that the price of the good would ultimately increase.

Post a Comment

Previous Post Next Post