Supply Determinants

• Resource Prices: A decrease in resource prices.
• Production Technology: An increase in production technology.
• Other Prices: A decrease in the price of a substitute-in-production or an increase in the price of a complement-in-production.
• Sellers' Expectations: Expectations by sellers of a decrease in the price in the future.
• Number of Sellers: An increase in the number of sellers in the market.

Old to New

Comparative Statics

Suppose, for example, that Professor Magnaminious, the leading expert on hot fudge sundae preparation, develops a breakthrough hot fudge sundae preparation process utilizing the Professor Magnaminious Triple-Dip Hot Fudge Wonder Machine. It is the sort of technological advance that is bound to increase the supply of Hot Momma Fudge Bananarama Ice Cream Sundaes. And when supply increases, the original market equilibrium is disrupted.

How is the Hot Momma Fudge Bananarama Ice Cream Sundae market affected? An advance in technology works through the production technology supply determinant to shift the supply curve rightward. Click the [Supply Increase] button to illustrate the rightward shift of the supply curve. The OLD market equilibrium is no longer equilibrium. A NEW market equilibrium is found at the intersection of the original demand curve and the new supply curve. Click the [New Equilibrium] button to highlight this result. The new equilibrium price is Pe and the new equilibrium quantity is Qe. Note that the price is lower and the quantity exchanged is greater.

Step by Step

Six Steps

• First, a determinant changes. In this case, the Professor Magnaminious Triple-Dip Hot Fudge Wonder Machine induces a technological advancement in hot fudge sundae preparation. A determinant change ALWAYS starts the market adjustment process.


• Second, the determinant change causes a curve to shift. The technological advance increases the supply of Hot Momma Fudge Bananarama Ice Cream Sundae and causes a rightward shift of the Hot Momma Fudge Bananarama Ice Cream Sundae supply curve. Click the [Supply Increase] button to illustrate this shift.


• Third, the shifted curve disrupts the market equilibrium, causing either a shortage or a surplus. In this example, the increase in supply creates a surplus. While sellers are now willing and able to sell more Hot Momma Fudge Bananarama Ice Cream Sundaes, buyers continue buying the original quantity at the original price. Up to this point, they have no reason to change. Click the [Surplus] button to highlight this imbalance.


• Fourth, the market imbalance causes the price to change. In this case, the sellers are not able to sell all of the Hot Momma Fudge Bananarama Ice Cream Sundaes that they would like. As such, they are willing and able to sell Hot Momma Fudge Bananarama Ice Cream Sundaes at a lower price. Click the [Price Decrease] button to illustrate this result.


• Fifth, the change in price causes changes in both quantities demanded and supplied. In this Hot Momma Fudge Bananarama Ice Cream Sundae market, the lower price has the intended effect of increasing the quantity demanded--which is the law of demand. It also has the unintended effect of decreasing the quantity supplied--which is the law of supply. Note that while the change in the production technology supply determinant induces sellers to supply more at all prices, including the original equilibrium price, the price decrease subsequently causes the quantity supplied to decrease.


• Sixth, changes in the quantities demanded and supplied both act to eliminate the market disequilibrium. In this example, the increase in the quantity demanded and the decrease in the quantity supplied eliminate the surplus. The price continues to change as long as the market is out of balance with a surplus. The new equilibrium price at Pe is lower and the new equilibrium quantity at Qe is larger. Click the [New Equilibrium] button to highlight this result.

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