Non-Price Determinants of Supply
Idea
A change in a good’s own price moves quantity supplied along the supply curve; a change in any other factor shifts the whole curve. There are five non-price determinants of supply.
Mechanism
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Number of producers. Market supply is the total of all producers’ output, so more producers means greater supply. New entrants drawn by profit (mask makers entering during the COVID-19 pandemic) shift supply outward.
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Cost of production. Higher costs make producers less willing and able to supply, shifting supply inward. Costs turn on input prices (wages, raw materials), the state of technology (better technology lowers unit cost), productivity (more output from the same inputs lowers unit cost), and government taxes and subsidies — a tax raises cost and contracts supply, a subsidy lowers cost and expands it.
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Prices of related goods (in production). Goods in joint supply are produced together from the same input (beef and leather from cattle), so more of one brings more of the other. Goods in competitive supply compete for the same factors (corn and wheat for farmland), so producing more of one leaves less capacity for the other. This is a supply-side relationship, not to be confused with demand-side substitutes and complements.
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Supply shocks. Abrupt, unexpected changes: a negative shock (conflict halting microchip factories) cuts supply sharply; a positive shock (a bumper harvest) raises it.
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Expectations. A producer expecting prices to rise may withhold current supply to stock up and sell later when prices are higher.
Considerations
When a determinant shifts supply, the price mechanism settles the market at a new equilibrium. The direction and size of the resulting price and quantity changes — and the effect on total revenue — depend on the elasticities, as set out in shifts versus movements and applying PED.