What They Are

• Resource Prices: The prices paid for the use of labor, capital, land, and entrepreneurship affect production cost and the ability to supply a good. If resource prices increase, then production cost is higher and the sellers are inclined to offer less of the good for sale. If resource prices decrease, then production cost is lower and the sellers are inclined to offer more of the good for sale.


• Production Technology: The information available concerning production techniques affects the ability to supply a good. Technology is what producers know about the ways to combine inputs into the production of outputs. An advance in technology makes it possible to sell more of a good. A decline in technology means producers can sell less of a good.


• Other Prices: The supply for one good is based on the prices paid for other goods that use the same resources for production. A change in the price of a substitute good (or substitute-in-production) induces sellers to alter the mix of goods purchased. An increase in the price of a substitute motivates sellers to sell more of this good and less of the substitute good. A change in the price of a complement good (or complement-in-production) induces sellers to supply more or less of both goods. An increase in the price of a complement motivates sellers to sell more of this good as they sell more of the complement good.


• Sellers' Expectations: The decision to sell a good today depends on expectations of future prices. Sellers seek to sell the good at the highest possible price. If sellers expect the price to decline in the future, they are inclined to sell more now. If they expect the price to rise in the future, they are inclined to sell less now.


• Number of Sellers: The number of sellers willing and able to sell a good affects the overall supply. With more sellers, there is more supply. With fewer sellers, there is less supply.

How They Work

The supply determinants are assumed constant for two reasons:

• One: To isolate the law of supply relation between supply price and quantity supplied


• Two: To systematically analyze what happens to supply when each determinant changes.

Supply Determinants

Now, consider how changes in the supply determinants shift the supply curve. A change in any of the five determinants can cause either an increase in supply or a decrease in supply.

• Increase in Supply: An increase in supply is a rightward shift of the supply curve. An increase in supply means that for any price, for every price, sellers are willing and able to sell more of the good. Click the [Increase] button to demonstrate.


• Decrease in Supply: A decrease in supply is a leftward shift of the supply curve. A decrease in supply means that for any price, for every price, sellers are willing and able to sell less of the good. Click the [Decrease] button to demonstrate.

Two Changes

• A Change in Supply: This a change in the overall supply relation, a change in all price-quantity pairs. It is caused by a change in one of the five supply determinants and is indicated by a shift of the supply curve.


• A Change in Quantity Supplied: This is a change in the specific amount of the good that sellers are willing and able to purchase. It is caused by a change in the supply price and is indicated by a movement along the supply curve from one point to another.