Change In Supply

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.

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