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ModULE 1.5
Shifts of the supply curve for a good or service are typically the result of a change AP ECoN TIP
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in one of five determinants of supply (though, as in the case of demand, there are other
possible causes): A price change causes
a change in the quantity
• • input prices
supplied, shown by a
• • the prices of related goods or services movement along the supply
• • producer expectations curve. When a nonprice
• • the number of producers determinant of supply
changes, this changes supply
• • technology
and therefore shifts the
Table 1.5-1 provides an overview of the factors that shift supply. supply curve. It is correct to
say that an increase in the
Changes in Input Prices To produce output, you need inputs. An input is any good price of lumber increases the
or service used to produce another good or service. For example, to make vanilla ice quantity of lumber supplied;
cream, you need vanilla beans, cream, sugar, and so on. Inputs, like outputs, have it is incorrect to say that an
prices. And an increase in the price of an input makes the production of the final good increase in the price of lumber
more costly for those who produce and sell it. So producers are less willing to supply increases the supply of lumber.
the final good at any given price, and the supply curve shifts to the left. For example,
when lumber prices surged in 2021, construction companies began cutting back on
new projects. Similarly, a fall in the price of an input makes the production of the final An input is a good or service
good less costly for sellers. They are more willing to supply the good at any given price, that is used to produce another
and the supply curve shifts to the right. good or service.
Changes in the Prices of Related Goods or Services A single producer often Two goods are substitutes in
produces a mix of goods rather than a single product. For example, an oil refinery production if producers can use
produces gasoline from crude oil, but it also produces heating oil and other products the same inputs to make either
from the same raw material. When a producer sells several products, the quantity of one good or the other.
any one good it is willing to supply at any given price depends on the prices of its other
co-produced goods. Two goods are complements
How a price change for one of the goods affects the supply of a related good in production if increased
depends on the relationship between the goods. When a producer can use the same production of either good
creates more of the other.
inputs to make either one good or the other, the two goods are substitutes in produc-
tion. For such goods, an increase in the price of one good creates an incentive for the
producer to use more inputs to produce the good whose price has risen and to supply
less of the other good. For example, when the price of heating oil rises, an oil refiner
will use more crude oil to make heating oil and supply less gasoline at any given price,
shifting the supply curve for gasoline to the left. When the price of heating oil falls, the
oil refiner will supply more gasoline at any given price, shifting the supply curve for
gasoline to the right.
When two goods are jointly produced, meaning that increased production of either
of the goods creates more of the other good, the two goods are complements in pro-
duction. For example, producers of crude oil — oil-well drillers — find that oil wells
often produce natural gas as a by-product of oil extraction. The higher the price of
natural gas, the more oil wells it will drill to produce natural gas along with oil, so the
more oil it will supply at any given price for oil. As a result, natural gas is a complement
in production for crude oil.
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AP ECoN TIP
Changes in Producer Expectations Just as changes in consumer expectations can The mnemonic I-RENT can
shift the demand curve, they can also shift the supply curve. When suppliers have some help you remember the
choice about when they put their good up for sale, changes in the expected future price factors that shift supply.
of the good can lead a supplier to supply less or more of the good today. Supply is shifted by changes
For example, gasoline and other oil products are often stored for significant peri- in . . . Input (resource) prices,
ods of time at oil refineries before being sold to consumers. In fact, storage is normally prices of Related goods
part of producers’ business strategy. Knowing that the demand for gasoline peaks in and services, producer
the summer, oil refiners normally reserve some of their gasoline produced during the Expectations, the Number of
spring for sale in the summer. Similarly, knowing that the demand for heating oil peaks producers, and Technology.
in the winter, they normally reserve some of their heating oil produced during the fall

Module 1.5 Supply 41
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