After you have worked through this section of the learning unit, you should be able to:
- explain with the aid of a supply curve what happens to supply if the cost of production increases or decreases
If there is an increase in the cost of production of fried chicken pieces, what do you think will happen to the supply curve for fried chicken pieces?
It will be a shift because a non-price factor has been changed; and it will be a leftward shift.
From the table, we know that at each price, a lower quantity of fried chicken pieces will be supplied if the cost of production increases.
Supply schedule for fried chicken pieces
| Price of fried chicken per piece (rand) | Quantity of fried chicken pieces supplied (per week) | Quantity of fried chicken pieces supplied after the cost of production increases (per week) |
|---|---|---|
| 7 | 48 | 44 |
| 6 | 42 | 38 |
| 5 | 36 | 32 |
| 4 | 30 | 28 |
| 3 | 24 | 20 |
| 2 | 18 | 14 |
| 1 | 12 | 8 |
We now have a new supply curve to indicate the supply of fried chicken pieces at this higher cost of production. This new supply curve is positioned to the left of the initial supply curve and a leftward shift in the position of the supply curve for fried chicken pieces has occurred.
Can you see the following?
- At a price of R7, the quantity supplied is lower at 44.
- At a price of R4, the quantity supplied is lower at 28.
- At a price of R2, the quantity supplied is lower at 14.
- At each price, the quantity supplied is lower.
- A leftward shift of the supply curve has occurred.
At each price, the quantity supplied is lower. This is shown by a leftward shift of the whole supply curve (S) to the new supply curve (S1).