Economics: Shift in Supply Curve

In summary: Oh, I see. So in this case the equilibrium point would be where consumption equals the quota?In that case, yes.
  • #1
domyy
196
0
Hello guys,

I have a quick question:

Would a leftward shift of the supply curve result in a shortage?
 
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  • #2
There are important differences.

If the supply is being reduced because of rationing, or because of prices (or generalized costs)?

Typically these "shortages" are measured in terms of welfare losses or gains.
 
  • #3
Take a firm selling very few of a particular product and because of it, it´s price is high.
So we´re talking about a deliberate reduction in supply which causes price to increase, in a sense. That results in a leftward shift of the supply curve. Now, can I say there´s a shortage after this shift?
 
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  • #4
domyy said:
Take a firm selling very few of a particular product and because of it, it´s price is high.
So we´re talking about a deliberate reduction in supply which causes price to increase, in a sense. That results in a leftward shift of the supply curve. Now, can I say there´s a shortage after this shift?

That is the supply side, What do we know about the demand side?

Are the consumers able to substitute this particular product? Do they must necessarily consume a limited amount of this product? (is it water? or XBOX?).

Depending on the demand, and supply, you will get different welfare gains or losses.

If the product is not essential, then prices are likely to lead to less consumption, and you could Consumer's Surplus to get an idea of the utility loss.

Also, what do you mean by "shortage"?

It seems to imply that consumers must meet a quota in their consumption with regards to the good. I think this is reasonable for water, food, and other similar goods. However, for XBOXs, and such likely not.
 
  • #5
Well, let´s say the company relies on the brand. People buy because of the name.
 
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  • #6
And people can afford it.
 
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  • #7
Hello,

A shortage occurs when the quantity demanded exceeds the quantity supplied.

If there's a shift of the supply curve to the left, and there are no price controls to impede adjustment, the market will move toward the equilibrium.ETA: No shortage would occur in this particular circumstance
 
  • #8
Take stores selling very expensive handmade gala dresses. Because it´s handmade, there are very few of those around. Its scarcity causes the price of the dresses to rise.
 
  • #9
With a leftward shift of the supply curve, demand will then be greater than supply, and that will cause price to rise. Would that be correct?
 
  • #10
The issue is what the author wants to accomplish from his/hers economic model.

Yes the definition of shortage is demand exceeds supply. However, you must understand that this static models can only show what happens from one equilibrium point to another. Thus, if you change the price or you ration the product, you will get a new equilibrium point. Given those two equilibrium points you can "measure" the welfare gains or losses. That is what I am trying to get at. However, your welfare results will vary depending on the policy that changes the equilibrium points.

If you care about the dynamics (how consumers change to between equilibrium points), then you should consider a dynamic form of the problem.

There are other issues that may be of interest depending whether strategic behavior should be considered.
 
  • #11
Oh I guess I understand. So you´re saying the new equilibrium is set at the the high price and which is established in this new equilibrium point now.
 
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  • #12
What I am trying to understand is what happens to the overall view of the graph.
 
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  • #13
There is a new intersection of the supply and demand curves.
That becomes the new equilibrium.
http://www.colorado.edu/Economics/courses/econ2020/section6/gifs/fig62.gif

Increase in price, decrease in quantity

Pyrrhus is not incorrect, but I believe he may be delving too deep into the question.
I'm assuming a simple comparative statics model that one would analyze in a principles class.
 
  • #14
delanis said:
There is a new intersection of the supply and demand curves.
That becomes the new equilibrium.
http://www.colorado.edu/Economics/courses/econ2020/section6/gifs/fig62.gif

Increase in price, decrease in quantity

Pyrrhus is not incorrect, but I believe he may be delving too deep into the question.
I'm assuming a simple comparative statics model that one would analyze in a principles class.

Yes. I am trying to ascertain domyy's purpose. I guess an easier way would have been to ask is this just your standard textbook problem?.

The problem is like I said from the beginning depends on what you think moving the supply function will affect the consumers. Thus, yes if you move it to the left, you get the classical result, and you can calculate the consumer surplus because of the change of price, and there is your answer.

More interesting problem will be to consider a case where the Consumer MUST meet a certain quota, and then the result varies.
 
  • #15
Thanks!
 
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  • #16
Thank both of you. You guys were a great help :)
 
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1. What is a shift in the supply curve in economics?

A shift in the supply curve in economics refers to a change in the quantity of goods or services that a producer is willing and able to supply at a given price. This can be caused by various factors such as changes in production costs, technology, or government policies.

2. How does a shift in the supply curve affect the market?

A shift in the supply curve can affect the market by causing a change in the equilibrium price and quantity. If the supply curve shifts to the left, there will be a decrease in supply which can lead to higher prices and lower quantity. Conversely, a shift to the right can increase supply and result in lower prices and higher quantity.

3. What are the factors that can cause a shift in the supply curve?

There are various factors that can cause a shift in the supply curve such as changes in production costs, input prices, technology, expectations, number of producers, and government policies. These factors can impact the supply of goods and services and cause the curve to shift either to the left or right.

4. How is a shift in the supply curve different from a movement along the curve?

A shift in the supply curve is different from a movement along the curve because a shift represents a change in the quantity supplied at a particular price, while a movement along the curve represents a change in quantity supplied due to a change in price. A shift is caused by external factors, while a movement is caused by a change in the price of the product itself.

5. Can a shift in the supply curve be temporary?

Yes, a shift in the supply curve can be temporary if it is caused by a short-term factor. For example, a natural disaster may temporarily disrupt the supply of a certain product, causing a shift in the supply curve. However, if the shift is caused by a long-term factor such as a change in technology, it is more likely to be permanent.

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