Conditions of Supply (CIE IGCSE Economics)

• 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)
  
  

A graph that shows how changes to any of the conditions of supply shifts 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 How Each of the Conditions of Supply Shifts the Entire Supply
Curve at Every Price Level

Condition	Explanation	Condition	Shift	Condition	Shift
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)
Indirect Taxes	Any changes to indirect taxes change the cost of production for a firm & 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)
New Technology	New technology increases productivity and lowers costs of production. Ageing technology can have the opposite effect	Technology Increases	S increases, shifting right (S→S2)	Technology 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 the 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)
Weather Events	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	S decreases, shifting left (S→S1)	Good Weather	S increases, shifting right (S→S2)