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With the aid of at least one diagram and examples, explain the difference between a movement along the supply curve and a shift of the supply curve

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Introduction

With the aid of at least one diagram and examples, explain the difference between a movement along the supply curve and a shift of the supply curve (10 marks) A supply curve is a curve showing the relationship between the quantities of a good that firms (or a firm) are willing and able to produce and sell during a particular time period and their respective prices, ceteris paribus (all other things being equal). An increase price will usually lead to an increase in the quantity supplied, and thus there is a positive relationship between price and supply. A movement along a supply curve only occurs when the price changes, ceteris paribus. In other words, the price changes but the other non-price determinants remain constant. ...read more.

Middle

Mr Hansen, head of commodity strategy at Saxo Bank, said that Opec, the cartel of oil producers, would cut output if prices started to slide towards $90 (contraction of quantity supplied of oil from A to B). If there is a change in non-price determinant of supply, supply will increase or decrease, and the entire curve will shift to the right or to the left, as in the graph below. A shift of the supply curve, caused by a change in a determinant of supply, is called a ?change in supply?. In the graph below, S1 to S2 represents a decrease in supply, and S1 to S3 represents an increase in supply. The price remains unchanged at P1; the shifts in the supply curve are caused by various changes in the determinants of supply. ...read more.

Conclusion

that it uses to produce its products. Prices of factors of production (such as wages, which are the price of labour) are important in determining the firm?s cost of production. If a factor price rises, the production cost increases, production becomes less profitable and the frim produces less (Q1 to Q2) at every price level e.g. P1; the supply curve shifts to the left (S1 to S2). Another example of a non-price determinant is the price of related goods (competitive supply). A rise in the price of apples will encourage fruit growers to move from growing pears etc. to producing apples, and thus the quantity supplied of pears will decrease (Q1 to Q2) at every price level e.g. P1, the supply curve of pears shifts to the left (S1 to S2); and consequently, the quantity supplied of apples will increase (Q1 to Q2) at every price level e.g. P1, and the supply curve of apples shifts to the right (S1 to S3). ...read more.

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