What is 'Change In Supply'

Change in supply is a term used in economics to describe when the suppliers of a given
good or service have altered production or output. A change in supply can be brought on by
new technologies, making production more efficient and less expensive, or by a change in
the number of competitors in the market.

BREAKING DOWN 'Change In Supply'

A change in supply leads to a shift in the supply curve, which causes an imbalance in the
market that is corrected by changing prices and demand. If the change in supply increases
supply, the supply curve shifts to the right, while a decrease in supply from a change in
supply shifts the supply curve left.

For example, if there is a new technology that makes the production of DVD players
cheaper, according to the law of supply, the output of DVD players increases. With more
outputs in the market, the price of DVD players likely falls, creating greater demand in the
marketplace and higher overall sales of DVD players

Supply and Demand Curves

The effects of changing supply and demand are found by plotting the two variables on a
graph, of which the horizontal X-axis represents quantity and the vertical Y-axis represents
price. The supply and demand curves intersect to form an "X" in the middle of the graph, the
supply curve pointing upward and the demand curve pointing downward. Where the two
curves intersect with respect to the X and Y axes tell you the price and quantity based on
current levels of supply and demand.

A positive change in supply amid constant demand shifts the supply curve to the right,
which results in an intersection that yields lower prices and higher quantity. A negative
change in supply shifts the curve to the left, causing prices to rise and quantity to decrease.

Change in Supply Example

During the early 2010s, the development of hydraulic fracturing ("fracking") as a method to
extract oil from shale rock formations in North America gave rise to a positive change in
supply in the oil market. Non-OPEC oil production rose by over one million barrels per day,
the majority of this coming from fracking in North America.

Consequently, the per-barrel price of oil, which had reached an all-time high of $147 in
2008, plunged as low as $27 in February 2016. Economists projected lower prices to create
greater demand for oil, though this demand was tempered by deteriorating economic
conditions in many parts of the world.

Supply is a fundamental economic concept that describes the total amount of a specific
good or service that is available to consumers. Supply can relate to the amount available at
a specific price or the amount available across a range of prices if displayed on a graph.
This relates closely to the demand for a good or service at a specific price; all else being
equal, the supply provided by producers will rise if the price rises because all firms look to
maximize profits.

BREAKING DOWN 'Supply'

Supply and demand trends form the basis of the modern economy. Each specific good or
service will have its own supply and demand patterns based on price, utility and personal
preference. If people demand a good and are willing to pay more for it, producers will add to
the supply. As the supply increases, the price will fall given the same level of demand.
Ideally, markets will reach a point of equilibrium where the supply equals the demand (no
excess supply and no shortages) for a given price point; at this point, consumer utility and
producer profits are maximized.

Supply Basics

The concept of supply in economics is complex with many mathematical formulas, practical
applications and contributing factors. While supply can refer to anything in demand that is
sold in a competitive marketplace, supply is most used to refer to goods, services or labor.
One of the most important factors that affects supply is the goods price. Generally, if a
goods price increases so will the supply. The price of related goods and the price of inputs
(energy, raw materials, labor) also affect supply as they contribute to increasing the overall
price of the good sold.

The conditions of the production of the item in supply is also significant; for example, when a
technological advancement increases the quality of a good being supplied, or if there is
a disruptive innovation, such as when a technological advancement renders a good
obsolete or less in demand. Government regulations can also affect supply, such as
environmental laws, as well as the number of suppliers (which increases competition) and
market expectations. An example of this is when environmental laws regarding the
extraction of oil affect the supply of such oil.

Supply is represented in microeconomics by a number of mathematical formulas. The

supply function and equation expresses the relationship between supply and the affecting
factors, such as those mentioned above or even inflation rates and other market influences.
A supply curve always describes the relationship between the price of the good and the
quantity supplied. A wealth of information can be gleaned from a supply curve, such as
movements (caused by a change in price), shifts (caused by a change that is not related to
the price of the good) and price elasticity.

History of Supply
Supply in economics and finance is often, if not always, associated with demand. The Law
of Supply and Demand is a fundamental and foundational principle of economics. The law
of supply and demand is a theory that describes how supply of a good and the demand for it
interact. Generally, if supply is high and demand low, the corresponding price will also be
low. If supply is low and demand is high, the price will also be high. This theory assumes
market competition in a capitalist system. Supply and demand in modern economics has
been historically attributed to John Locke in an early iteration, as well as definitively used
by Adam Smiths well-known An Enquiry into the Nature and Causes of the Wealth of
Nations, published in Britain in 1776.

The graphical representation of supply curve data was first used in the 1870s by English
economic texts, and then popularized in the seminal textbook Principles of Economics by
Alfred Marshall in 1890. It has long been debated why Britain was the first country to
embrace, utilize and publish on theories of supply and demand, and economics in general.
The advent of the industrial revolution and the ensuing British economic powerhouse, which
included heavy production, technological innovation and an enormous amount of labor, has
been a well-discussed cause.
Related Terms & Concepts
Related terms and concepts to supply in todays context include supply chain
finance and money supply. Money supply refers specifically to the entire stock of currency
and liquid assets in a country. Economists will analyze and monitor this supply, formulating
policies and regulations based on its fluctuation through controlling interest rates and other
such measures. Official data on a countrys money supply must be accurately recorded and
made public periodically. The recent and ongoing European sovereign debt crisis, which
began in 2007, is a good example of the role of a countrys money supply and the global
economic impact.

Global supply chain finance is another important concept related to supply in todays
globalized world. Supply chain finance aims to effectively link all tenets of a transaction,
including the buyer, seller, financing institutionand by proxy the supplierto lower overall
financing costs and speed up the process of business. Supply chain finance is often made
possible through a technology-based platform, and is affecting industries such as the
automobile and retail sectors.