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leftward
(or 
upward
) shift in the supply curve if the cost of supply increases. 
This would mean that at the existing price, a firm's output will decrease and less will be supplied.
This is also illustrated on Figure 7: at price P
1
, the quantity supplied now falls from Q
0
to Q
2
, as the 
supply curve shifts from S
0
to S
2
. 
In order for the supplier to restore output levels to the original Q
0
, price would have to increase to P
2
.
An upward (leftward) shift (S
0

S
2
) in supply could be caused by:
(a) 
An increase in the cost of factors of production 
(b) 
A rise in the price of other goods which would make them relatively more attractive to the 
producer 
(c) 
An increase in indirect taxes, or a reduction in a subsidy, which would make supply at existing 
prices less profitable 
 EXAM FOCUS POINT 
This distinction between a movement along the supply curve and a shift in the supply curve is just as 
important as the similar distinction relating to the demand curve.
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CHAPTER 4
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MICROECONOMIC FACTORS 
 
107 
Price
P
1
Q
Q
0
1
Quantity supplied
S
S
0
1
Q
2
S
2
P 
2
Figure 7 Shifts in the supply curve 
We need to distinguish between short run and long run responses of both supply and demand. 
In the 
short run 
both supply and demand are 
relatively unresponsive 
to changes in price compared with the
 
long run
. 
(a) 
In the case of supply
, changes in the quantity of a good supplied often require the laying off or 
hiring of new workers, or the installation of new machinery. All of these changes, brought about 
by management decisions, take some time to implement.
(b)