A positive technological change will cause the supply of a good to increase.

Change in supply refers to a shift, either to the left or right, in the entire price-quantity relationship that defines a supply curve.

Key Takeaways

• Change in supply refers to a shift, either to the left or right, in the entire price-quantity relationship that defines a supply curve.
• Essentially, a change in supply is an increase or decrease in the quantity supplied that is paired with a higher or lower supply price.
• A change in supply can occur as a result of new technologies, such as more efficient or less expensive production processes, or a change in the number of competitors in the market.
• A change in supply is not to be confused with a change in the quantity supplied.

Understanding Change in Supply

A change in supply is an economic term that describes when the suppliers of a given good or service alter production or output. A change in supply can occur as a result of new technologies, such as more efficient or less expensive production processes, or a change in the number of competitors in the market.

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. An increase in the change in supply shifts the supply curve to the right, while a decrease in the change in supply shifts the supply curve left. Essentially, there is an increase or decrease in the quantity supplied that is paired with a higher or lower supply price.

A change in supply shouldn't be confused with a change in the quantity supplied. The former causes a shift in the entire supply curve, while the latter results in movement along the existing supply curve.

The general consensus amongst economists is that these are the primary factors that cause a change in supply, which necessitates the shifting of the supply curve:

• Number of sellers
• Expectations of sellers
• Price of raw materials
• Technology
• Other prices

For example, if a new technology reduces the cost of gaming console production for manufacturers, according to the law of supply the output of consoles will increase. With more output in the market, the price of consoles is likely to fall, creating greater demand in the marketplace and higher overall sales of consoles. This technological advancement has caused a change in supply.

Supply and Demand Curves

The effects of changing supply and demand are found by plotting the two variables on a graph. 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 points upward and to the right, while the demand curve points downward and to the right. Where the two curves intersect is the price and quantity, based on current levels of supply and demand.

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

Change in Supply Example

During the early 2010s, the development of hydraulic fracturing, or "fracking", as a method to extract oil from shale rock formations in North America caused a positive change in supply in the oil market. Non-OPEC oil production rose by over one million barrels per day, with most of the oil coming from fracking activity in North America.

Because of the increase in the supply of oil, the per-barrel price of oil, which had reached an all-time high of $147 in 2008, plunged as low as $27 in Feb. 2016. Economists predicted that lower prices would create greater demand for oil, although this demand was tempered by deteriorating economic conditions in many parts of the world.

The economic laws of demand and supply determine the markets for products and their equilibrium prices. However, economic forces can cause shifts in the demand and supply curves for a product and movements along the curves.

Changes in technology are one of those factors that influence the positions and movements of demand and supply curves. First, you should learn and understand the terminology that describes demand and supply curves.

Economic Definitions for Demand

A demand curve is a downward sloping function that shows the quantity demanded at different prices.

A change in demand refers to a shift in the demand curve. Factors that can cause a shift in the demand curve are changes in income, population, prices of substitutes, prices of related goods, consumer tastes or preferences, or buyers' expectations.

These factors can cause a demand curve to shift either to the left or right.

A change in quantity demanded refers to a movement along the demand curve as a result of a change in price. If the price of the product goes up, the demand will go down; conversely, if the price decreases, consumers will increase demand and purchase more of the product.

Economic Definitions for Supply

A supply curve is an upward sloping function that shows the quantity supplied at any given price.

A change in supply refers to a shift in the supply curve. Factors that can shift a supply curve either to the left or the right are changes in input prices, number of sellers, technology, social concerns and expectations. A movement along the supply curve is a change in quantity supplied because of a change in price.

Effect of Technology on Supply

Shifts in a supply curve are usually the result of advances in technology that reduce the input costs of production.

Technological advances that improve production efficiency will shift a supply curve to the right. The cost of production goes down, and consumers will demand more of the product at lower prices. Computers, televisions and photographic equipment are good examples of the effects of technology on a supply curve.

According to the Bureau of Labor Statistics, the Consumer Price Index for computers declined 96 percent from 1997 to 2015. In the same period, the price index for televisions decreased 94 percent. Electronics manufacturers continue to improve the quality of their products and lower the cost of production.

At lower prices, consumers can purchase more TVs and computers, causing the supply curve to shift to the right. Laptops that cost several thousand dollars a few years ago can now be purchased for a few hundred dollars, and they have more storage and faster processor speeds.

Effect of Technology on Demand

Changes in technology can affect the demand for different products or the demand for related products. It can increase the market for a product by increasing the demand for a new product and making an older product obsolete.

Going back to the example of how technology affected the prices and supplies of computers, consider the emergence of demand for tablets. While technology improved the quality and lowered the prices for laptops, technology also created a market for tablets with equal performance to laptops but at lower prices.

As a result, the demand for laptops was reduced in the face of competition from tablets. In electronics, advances in technology are constantly changing the landscape with the introduction of new products and forced obsolescence of older products. As manufacturers continue their quest to improve productivity and efficiency through technological advances, the demand and supply for products will always be adjusting to consumers' tastes and preferences.

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