Shift in the supply curve – Example

We consider the shift in the supply curve under a perfectly competitive market. A perfectly competitive market is where the industry is the price setter and all the firms in the markets are price takers. The shift of the supply curve under a perfectly competitive market is caused by the other determinants of the supply rather than the price. These factors include; the state of technology, prices of other goods, prices of factors of production, government subsidies and speculation among other factors. For shift in the supply curve to occur the prices and the others determinants of supply must be held constant.

We can give example of how each determinant of supply leads to a change in the supply curve. If we have a firm that is currently supplying fruits in the market. We assume that the supply curve will be influenced by prices and the level of technology only .The supply curve will remain the same when the level of technology is not changing and if the prices of the quantity supplied remains the same in the market. An improvement in the fruit packing and addition of value technology suggest that the total output and the revenue achieved will increase due to the changes in the packing technology. Therefore the supply will increase without an increase in price. The increased level of technology will therefore shift the supply curve downwards to the right.

We can give an example of wheat farming in Argentina. The amount supplied in the market will remain the same as long as the factors of production remain the same. We can assume that initially the factor of production that is fertilizer quantity is held at 50 bags and the costs of one bag of fertilizer is $50. The total price of inputs therefore is $2500 .if the price of one bag of fertilizer reduces to $40 the total prices of input factor (fertilizer) will be $ 2000. The reduction in the prices of input of fertilizer will make the farmers to produce more wheat hence increasing the supply. The supply will therefore shift downwards to the left when the prices of input commodity decreases .If the prices of a bag of fertilizer increased to $ 60 it means  that the prices of input factor(fertilizer) will  increase to $ 3000.Therefore the  amount supplied in the market will reduce due  to increase in the costs of production. The supply curve will therefore shift upwards to the right.

We can also give another example of a wheat farmer in Argentina. If the farmer plants both wheat and corn in his/her ranch and suppose that the price of corn increases from $ 10 to $ 15 for a 10 pounds bag. We also assume that the prices of wheat remain the same the farmer will opt to plant corn rather than plant wheat .Therefore the quantity of wheat supplied in the market will reduce due to changes in the prices of corn. The supply curve for wheat will therefore shift upwards when the prices or corn increase and will shift downwards to the right when the prices of corn decreases.

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