Cambridge International as and a level Economics Ebook

Causes of shift s in the supply curve
Companies clearly diff er in their willingness and ability 
to supply products and, as with demand, we could 
spend a long time building a list of possible factors other 
than price that will aff ect supply. If we were required 
59
Chapter 2: The price system and the microeconomy 

---

to conduct a detailed analysis of supply conditions in 
a particular industry, that might be justifi ed. For our 
purposes we need to simplify and generalise about the 
factors that can infl uence supply in most industries. As 
with demand, we can focus on three main infl uences:
1
the costs associated with supplying the product
2
the size, structure and nature of the industry
3
government 
policy.
Costs
In a market-based economy, no business (in the absence 
of government support) can exist indefi nitely if it makes 
losses, so companies will make supply decisions on the 
basis of the price they can get for selling the product in 
relation to the cost of supplying it. What we are interested 
in is what factors can infl uence the position of the supply 
curve – in other words, what factors can cause an increase 
or a decrease in the costs of supplying each and every 
unit, since it is likely that this will impact on the price 
that companies charge per unit. Below are listed some 
potentially infl uential factors – if any factor pushes up 
costs, there is likely to be a left ward shift in the supply 
curve or a decrease in supply; if the factor lowers costs, 
there is likely to be an increase in supply:
■ 
wage rates
■ 
worker productivity (output per worker)
■ 
raw material and component prices
■ 
energy costs
■ 
equipment maintenance costs
■ 
transport costs
■ 
the state of technology.