2/27/12

An increase in supply shifts the supply curve down



In this post we are going to go over the economics of supply for translations services. 

One of the intuitively confusing aspects of a supply curve is that an increase in supply actually shifts the supply curve down.  Likewise, a decrease in supply will shift the supply curve up.  Because of this counter intuitive result, I like to think of an increase in supply as a rightward shift, and a decrease in supply as a leftward shift. 


We can clarify this result by actually looking at a shift in a supply curve for a translation service.  By keeping the price the same on both supply curves, we can see that a downward shift in the supply curve (an increase in supply) causes the quantity supplied to increase.  This means that quantity supplied goes up with an increase in supply --- as long as price remains the same --- which intuitively makes sense.

This result also makes sense when we have an example.  Consider the market for translation service, and what would happen if there were an increase in the number of firms in the market.  For example, the original supply curve could represent one translation company, while the second one (the increase in supply) represents two.  Now with more firms in the market, we would expect to see more of the good being supplied in the market, and that is exactly what we get with a downward shift.

So remember, even though an increase in supply sounds like an upward shift in supply, it isn’t.  Go through the trick of keeping price the same, and check which supply curve has the higher quantity supplied and you will never miss this type of question on your homework or exam. 

You can do this same trick for a decrease in supply.  Imagine that the cost of an input goes up; this would cause a decrease in supply.  Sketch both supply curves and see which one has the lower quantity supplied at the same price.  The one with the lower quantity supplied amount represents the decrease in supply which makes sense, however the curve itself is higher which doesn’t make sense but now you know better!


Spread the knowledge!
Technorati Digg This Stumble Stumble Facebook Twitter

0 comments:

Post a Comment

 

I invite you to join dropbox!

I invite you to join dropbox!
Use the above link for an extra 250MB Free!
All content on this site is the copyright of webmaster. No re-posting is permitted. Powered by Blogger.

Post Archive

| FreeEconHelp.com, Learning Economics... Solved! © 2009. All Rights Reserved | Template Style by My Blogger Tricks .com | Design by Brian Gardner Back To Top