A reduction in price from P1 to P2 causes a fall in quantity supplied as fewer goods are produced as it becomes unprofitable for some suppliers. Similarly, a fall in customer demand from Q1 to Q2 will encourage suppliers to reduce prices to try to maintain sales. Price
S
P1 P2
0 Shifts in supply curves
Sometimes the quantity of a product supplied will rise or fall even though prices remain unchanged. For example, if a soft drinks company introduces more efficient bottling equipment, it could hold its prices the same at P1 but increase supply from Q1 to Q2. This is represented by a shift to the right in the supply curve.
P P Q2 Q1
Quantity Supplied
P1
P1
0
Q1 Q2
Q
0
Q2 Q1
Similarly, if a fire damaged a major bottling factory and significantly reduced the supply to the market, then the supply curve would shift to the left indicating a fall in supply from Q1 to Q2 even though price has remained the same at P1.
Numeracy
It’s May and the ice cream market is stable. June, July and August turn into a long hot summer and demand for ice cream soars. 1. If ice cream producers keep their prices unchanged, what will happen to the demand curve for ice cream? (Hint: it will shift – but which way?)
2. With rising demand, ice cream firms will want to increase supply to gain more sales. What will happen to the supply curve for ice cream? (Hint: it will shift – but which way?)
