Question

Supply is a powerful force in a free market.

In two to three sentences, explain some of the factors that cause shifts in supply and what effects these shifts may have.

Answer 1

Factors that shift supply include changes in input costs, technology, taxes or subsidies, expectations, the number of sellers, and natural or regulatory conditions; these change producers’ willingness or ability to sell at every price, shifting the supply curve right (increase) or left (decrease). Such shifts alter market equilibrium — an increase in supply tends to lower the equilibrium price and raise equilibrium quantity, while a decrease in supply tends to raise price and reduce quantity (assuming demand is unchanged).