Farmers are frequently faced with the production of substitute crops, such as corn or soybeans. Automobile companies must choose between the production of four-door sedans or pickup trucks. Building contractors devote their resources to the construction of multi-family apartment buildings or single-family houses.

The price of a substitute-in-production is part of the other prices supply determinant. A change in the price of a substitute-in-production causes a change in supply and a shift of the supply curve. An increase in the price of one substitute good causes a decrease in the supply of the other. A decrease in the price of one substitute good causes an increase in the supply of the other.

Shifting the Supply Curve

Substitute-in-Production

How is the supply of sport shirts affected if the price of window curtains should change?

• A Higher Price: Suppose the price of window curtains increases. Profit-minded window curtain producers undoubtedly react according to the law of supply and increase the quantity supplied of window curtains. However, in that this requires additional resources, fewer are available to produce a substitute good, such as sport shirts. The result is a decrease in the supply for sport shirts and a leftward shift of the supply curve. Click the [Price Increase] button to demonstrate.

  The production substitution between window curtains and sport shirts is due to a change in relative prices triggered by the change in the price of window curtains, given that the price of sport shirts remains constant. That is, even though the price of sport shirts does not change, it is relatively cheaper due to the higher price of window curtains.



• A Lower Price: Suppose the price of window curtains decreases. Profit-minded window curtain producers now react according to the law of supply and decrease the quantity supplied of window curtains. However, this frees up resources that can be used to produce a substitute good, such as sport shirts. The result is an increase in the supply for sport shirts and a rightward shift of the supply curve. Click the [Price Decrease] button to demonstrate.

  The production substitution between window curtains and sport shirts is once again due to a change in relative prices triggered by the price of window curtains, with no change in the price of sport shirts. That is, even though the price of sport shirts does not change, it is relatively more expensive due to the lower price of window curtains.