Explain the difference between change in supply and change in quantity supplied.

 

CHANGES IN SUPPLY VERSUS CHANGES IN QUANTITY SUPPLIED

The factors influencing supply have been broadly divided into two categories: (a) the price of the commodity in question whose supply is being considered and (b) factors other than the price of the commodity. Based on this distinction between factors we have another distinction namely, changes in quantity supplied and changes in supply. If the price of a commodity changes and there is a corresponding change in production or amount offered for sale, we call this change in quantity supplied. Similarly, if the production of a commodity undergoes a change because of factors other than the price of the commodity, we call this change in supply.

 Changes in Quantity Supplied

When the amount offered for sale changes on account of a change in the price of the commodity only, assuming all other factors to be constant, it is termed as changes in quantity supplied. The changes in quantity supplied can be of two types.

1-      When the price of a commodity falls and its quantity supplied falls provided the law of supply applies, it is termed as 'contraction of supply.'

2-      When the price of a commodity rises and its quantity supplied rises provided the law of supply applies. it is termed as "extension of supply'.

On the X-axis quantity of pens supplied are measured and on Y-axis price per pen is measured. S curve is the required supply curve. Start with point a on the supply curve at which price per pen is Rs 3 and quantity supplied is 30,000 pens. As the price per pen falls to Rs 2 the quantity supplied falls to 20,000 and when the price of the pen rises to Rt4, the quantity supplied rises to 40,000. The fall-in quantity supplied from 30,000 to 20,000 with the fall in price, from Rs 3 to Rs 2 is termed as 'contraction of supply'. On the graph, it is the movement from a to c on the supply curve which represents 'contraction of supply'. Similarly, the movement from a to b on the supply curve represents ‘extension of supply' since it implies that the quantity supplied rises from 30,000 to 40,000 with the rise in price from Rs 3 to Rs 4.

 

Graph 1
Changes in Quantity Supplied

Thus, changes in quantity supplied are the result of only changes in the price of the commodity in question, other things remaining unchanged.

Change in Supply

A change in supply means that at each price, a different quantity of a Commodity will be supplied than previously. Changes in supply can be two types.

A decrease in supply:

When the quantity of a commodity supplied falls, at the same price it is referred to as a 'decrease in supply' which is represented in the form of a curve, implies a leftward shift of the supply curve.

An increase in supply:

When the quantity of a commodity supplied increases, at the same price, it is known as an `increase in supply' which amounts to a rightward shift in the supply curve.

Both types of changes in supply are shown in the Figure below. In this diagram, it can be seen that as we move from point a on S curve to a' at price Rs 3 supply or quantity, supplied falls from 30,000 to 20,000. Similarly, at Rs 2 price at a point on S curve supply was 20,000 which falls to 10,000 at point c'.

Graph 2
Shift in Supply Curve

So, if points like a', a' are joined a new supply curve labeled S' can be drawn. This shift in the curve from S to S' is referred to as a 'decrease in supply'.

Instead, if we move from point a on S-curve to point a" we get an increase in supply from 30,000 to 40,000 at Rs 3 price. At price Rs 2. the supply increases from 20000 to 30,000 as we move from point c to c'’. If points like c" and a" are joined, a new supply curve S" is arrived. The shift in supply curve from S to S" is referred to as an “Increase in supply.’'

In short, a rise in supply implies a rightward shift of the supply curve showing that producers are willing to supply more at each price. A fall in supply, on the other hand, implies a leftward shift of the supply curve indicating that producers are willing to supply less at each price.

Why Supply Curve Shifts?

The reasons for the changes in supply (both increase and the decrease in supply) can be stated as follows:

·        Change in the prices of other commodities:

A decrease in the prices of other commodities increases the supply of the commodity in question at each price because relatively profits by supplying other products fall. An increase in the prices of other commodities decreases the supply of the commodity in question at each price.

·        Change is the prices of factors, of production:

An increase in the prices of factors of production used in producing the commodity tends to reduce the supply of the commodity at each price, since the cost of production rises and at the given price, profits fall. Conversely a decrease in the prices of factors of production used in making a commodity leads to an increase in supply, at each price.

·        Change in technology:

An improvement in technology normally leads to a fall in the cost of production and given the price of the product, a producer tends to produce more of that commodity, at each price. Conversely, loss in technical knowledge (the. chances of which are meager) will lead to a fall in supply, at each price.

·        Change or expectation of change in other factors:

Sometimes, the supply of a commodity may change because of the change in government policies relating to taxes or rate of interest or because of fear of war or because of changing inequalities of income and wealth which influence the demand for particular types of goods and hence making it more or less profitable to produce that commodity. Accordingly, if producers expect more profits because of change in other factors, supply increases at each price. Conversely, if producers expect fewer profits because of change in other factors, supply decreases at each price.