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!
