What is a '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.

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 supply increases, the supply curve shifts to the right, while a decrease in supply shifts the supply curve left.

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.

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 the demand curve points downward. 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 shifts the curve to the left, causing prices to rise and the quantity to decrease.

Graph depicting the law of supply and demand.

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 caused a positive change in supply in the oil market. Non-OPEC oil production rose by over one million barrels per day as most of the oil came from fracking 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 February 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.

RELATED TERMS
  1. Supply Curve

    A supply curve is a representation of the relationship between ...
  2. Supply

    Supply is a fundamental economic concept that describes the total ...
  3. Law of Supply and Demand

    The law of supply and demand explains the interaction between ...
  4. Growth Curve

    A growth curve is a graphical representation of how a particular ...
  5. Law of Demand

    The law of demand states that quantity purchased varies inversely ...
  6. Demand Curve

    The demand curve is a representation of the correlation between ...
Related Articles
  1. Insights

    Introduction to Supply and Demand

    Learn about one of the most fundamental concepts of economics - supply and demand - and how it relates to your daily purchases.
  2. Insights

    What Is Equilibrium?

    Equilibrium is a state of balanced supply and demand.
  3. Investing

    Bond yield curve holds predictive powers

    This measure can shed light on future economic activity, inflation levels and interest rates.
  4. Investing

    How Long Can Gas Stay Cheap?

    The current gas prices means a lot for the economy and our pockets. Let's explore how long we can expect gas prices to be low, what affects gas prices, and what changes might be in store.
  5. Investing

    How Long Will Oil Prices Remain Low?

    With demand for oil weakening and new sources of supply, the price of oil is likely to remain below $100 a barrel for quite some time.
  6. Investing

    These 5 Countries Move the Supply of Oil

    Learn which countries are the largest source of change in the global supply of oil. Oil prices crashed in 2014 as supply increased and demand dropped.
  7. Investing

    Why it is important to follow crude oil inventories

    Discover what oil inventories are, how they are communicated, and what important insights they provide into the state of the oil market.
  8. Investing

    Looking to Invest In Oil? Be Patient

    Learn about the best time to pick a bottom in oil. Oil prices have been destroyed due to excess supply and slowing demand from a slow global economy.
  9. Investing

    Charles Schwab: Flattening Yield Curve Isn't Reason to Worry About Stocks

    While stock investors have plenty of worries, the flattening yield curve shouldn't be one of them, says Charles Schwab's Liz Ann Sonders.
RELATED FAQS
  1. How Does the Law of Supply and Demand Affect Prices?

    Learn how the law of supply and demand affects prices, as when one outweighs the other, prices can rise or fall in response. Read Answer >>
  2. What are some examples of the law of demand in real markets?

    Find out how the price of a good or service affects the quantity demanded, and explore instances of consumption reflecting ... Read Answer >>
  3. How does the law of supply and demand affect the oil industry?

    Learn how the law of supply and demand affects the oil industry. Supply and demand determines the price of oil, which drives ... Read Answer >>
  4. What is the current yield curve and why is it important?

    Understand what the current yield curve represents, and learn how market analysts commonly interpret various changes in the ... Read Answer >>
  5. How can I calculate a company's forward p/e in Excel?

    Discover why trading volume is higher when the price of a security changes. Supply and demand is the mechanism through which ... Read Answer >>
  6. How does fracking affect oil prices?

    Read about the short- and long-term impacts of hydraulic fracturing, also known as fracking, on global oil markets and oil ... Read Answer >>
Trading Center