Conditions of Supply (Cambridge (CIE) IGCSE Economics)
Revision Note
Shifts of the 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 conditions of supply
Changes to any of the conditions of supply shifts the entire supply curve (as opposed to a movement along the supply curve)
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
How Each of the Conditions of Supply Shifts the Entire Supply Curve
Costs of Production (COP) | |
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Indirect Taxes | |
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Subsidies | |
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New Technology | |
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Change in the number of firms in the industry | |
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Weather Events | |
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Examiner Tip
Several of the conditions 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 (for example, 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.
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