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Conditions of Supply

Exam code: 2281
Written by: Ashika|Reviewed by: Caroline Carroll|Updated 2 July 2026

Shifts of the Supply Curve

Shifts of the Supply Curve

  • There are several factors that will change the supply of a good/service, irrespective of the price level. Collectively these factors are called the conditions of supply

  • Changes to any of the conditions of supply shifts the entire supply curve (as opposed to a movement along the supply curve)

Graph showing supply curves shifting. Initial curve S shifts left to S1 at reduced quantity and right to S2 at increased quantity, price remains at £7.
A graph that shows how changes to any of the conditions of supply shifts the entire supply curve left or right, irrespective of the price level

  • For example, if a firm's cost of production increases due to the increase in price of a key resource, then there will be a decrease in supply as the firm can now only afford to produce fewer products

    • This is a shift in supply from S to S1. The price remains unchanged at £7 but the supply has decreased from 10 to 2 units

How Each of the Conditions of Supply Shifts the Entire Supply Curve

Costs of Production (COP)

  • If the price of raw materials or other costs of production change, firms respond by changing supply. 

  • COP increases

    • S decreases

      • Shifting left

      • (S→S1)

  • COP decreases

    • S increases

      • Shifting right

      • (S→S2)

Indirect Taxes

  • Any changes to indirect taxes change the cost of production for a firm and impact supply.

  • Taxes increase

    • S decreases

      • Shifting left

      • (S→S1)

  • Taxes decrease

    •  S increases

      • Shifting right

      • (S→S2)

Subsidies

  • Changes to producer subsidies directly impact the cost of production for the firm.

  • Subsidy increases

    • S increases

      • Shifting right

      • (S→S2)

  • Subsidy decreases

    • S decreases

      • Shifting left

      • (S→S1)

New Technology

  • New technology increases productivity and lowers costs of production.

  • Ageing technology can have the opposite effect.

  • Technology increases

    • S increases

      • Shifting right

      • (S→S2)

  • Technology decreases

    • S decreases

      • shifting left

      • (S→S1)

Change in the number of firms in the industry

  • The entry and exit of firms into the market has a direct impact on the supply.

  • If ten new firms start selling building materials in Hanoi, the supply of building material will increase.

  • No. of firms increases

    • S increases

      • Shifting right

      • (S→S2)

  • No. of firms decreases

    • S decreases

      • Shifting left

      • (S→S1)

Weather Events

  • Droughts or flooding can cause a supply shock in agricultural markets.

  • A drought will cause supply to decrease.

  • Unexpectedly good growing conditions can cause supply to increase.

  • Drought

    • S decreases

      • Shifting left

      • (S→S1)

  • Good weather

    • S increases

      • Shifting right

      • (S→S2)

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