Change in the own price of a commodity on one hand and changes in any of the other supply factors such as prices of related goods, cost of production, technology, Government policy, etc., have two different effects on the supply of a commodity.
Changes in Quantity Supplied (movement along supply curve)
The change in quantity supplied be it increase or decrease is as a result of the retail price alone. That is, price is a major factor here for the changes in quantity supplied. It is also referred to as movement along supply curve.
There are two types of changes in quantity supplied:
- an increase in quantity supplied (upward movement along the same supply curve)
- and a decrease in quantity supplied (downward movement along the same supply curve)
It is caused when the price of a commodity increases. It is shown as an upward movement along the same demand curve from left to right.
From the graph above there is a movement along the supply curve from A to B indicating an increase in quantity supplied as price increases. At point A, when the price was N4000 quantity supplied was 30 bags. But when the price increased to N5,000, quantity supplied increased to 40 bags.
Decrease in Quantity Supplied
It is caused when the price of a commodity decreases. It is shown as a downward movement along the demand curve from right to left.
From the graph above there is a movement (downward) along the demand curve from point C to point D indicating a decrease in quantity supplied as price decrease. At point C when price was N6,000, quantity supplied was 60 bags. But when price decreased to N5000, quantity supplied decreased to 40 bags.
Change in Supply (shift in supply Curve)
Change in supply be it increase or decrease is as a result of other factors affecting supply (prices of related goods, cost of production, technology, Government policy), where price is held constant. It is also referred to as a shift in the demand curve
there are two types of Change in supply:
- Increase in supply (rightward shift in supply curve)
- Decrease in supply (Leftward Shift in supply curve)
Increase in supply (rightward shift in supply curve)
An increase in supply is caused where more quantity of commodities are supplied as a result of change in other factors affecting demand where price is held constant.
From the graph above there is an increase in supply from 40 bags to 50 bags, but the price still remained N5500. This change is as a result of change in other factors affecting supply. It is a rightward shift in the supply curve from S0 to S1.
Decrease in supply (Leftward shift in supply Curve)
A decrease in supply is caused when less quantity of commodities are bought as a result of changes in other factors affecting demand where price is held constant.
From the graph above there is a decrease in the supply from 60 bags to 50 bags, but the price still remained at N6,000. This change is as a result of changes in other factors affecting supply. it is a leftward shift in the supply curve from S0 to S2.
Note: A change in quantity supplied is caused by change in price, while a change in supply is caused by changed in other factors affecting supply.
Article by: Monday Desmond
No comments:
Post a Comment