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Homework answers / question archive / Identify the factors that cause a supply curve to shift

Identify the factors that cause a supply curve to shift

Economics

Identify the factors that cause a supply curve to shift.

Show on a graph the impact on the supply of pizzas in restaurants if there was an increase in the price of pasta in restaurants.

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A shift of supply curve means there is a change in the non-price factors which will affect the quantity supplied by the firm. These factors are the price of other goods (substitute goods and complementary goods), the number of sellers in the market, the technology used in production, the price of inputs used in production, the government regulations (subsidies, rules, taxes), and many more.

The rightward shift of a curve shows that there is a positive impact of the non-price factors on the quantity supplied. It means there will be a rise in quantity supplied by a firm.

The leftward shift shows that there is a reduction in the quantity supplied by the firm because of non-price factors.

Impact of a rise in the price of pasta to the supply of pizzas:

Here, pizza and pasta are substitute goods from the producer's point of view because both goods can be produced by using the inputs which are closed to each other. A rise in the price of substitute goods will cause a reduction in the supply of original goods because the producer has the incentive to produce more of substitute goods due to the law of supply.

There is a direct relationship between price and quantity of goods supplied because of the law of supply.

The above graph shows the impact of the rise in the price of pasta on the supply of pizzas.

As both goods are substitutes to each other; so, the rise in the price of pasta will decrease the supply of pizzas, which will cause a leftward shift in the supply curve of pizzas.

Here, the supply of pizzas will be decreased, but the price of pizza will remain the same as previous price because the rise in the price of a substitute good (pasta) is a non-price factor, which will impact the only quantity of pizza.

Here,

S represents the original supply curve of pizza.

S` represents the new supply curve of pizza after the change in the price of pasta.

P represents the price of the pizza.

Q represents the number of pizza supplied.

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