Page 103 - Krugmans Economics for AP Text Book_Neat

figure 6.2 An Increase in Supply

Price of
coffee beans Supply Schedules for Coffee Beans
(per pound)
S 1 S 2 Quantity of coffee beans supplied Section 2 Supply and Demand
$2.00 Price of (billions of pounds)
coffee beans
Supply curve
1.75 before entry o f (per pound) Before entry After entry
new producers $2.00 11.6 13.9
1.50 1.75 11.5 13.8
1.50 11.2 13.4
1.25 1.25 10.7 12.8
1.00 10.0 12.0
1.00
0.75 9.1 10.9
Supply curve 0.50
0.75 8.0 9.6
after entry of
new producers
0.50
0 7 9 11 13 15 17
Quantity of coffee beans
(billions of pounds)

The entry of Vietnam into the coffee bean business generated other showing supply after Vietnam came in—and their corre-
an increase in supply—a rise in the quantity supplied at any sponding supply curves. The increase in supply shifts the sup-
given price. This event is represented by the two supply ply curve to the right.
schedules—one showing supply before Vietnam’s entry, the

Figure 6.3 on the next page. The movement from point A to point B is a movement
along the supply curve: the quantity supplied rises along S 1 due to a rise in price. Here,
a rise in price from $1 to $1.50 leads to a rise in the quantity supplied from 10 billion to
11.2 billion pounds of coffee beans. But the quantity supplied can also rise when the
price is unchanged if there is an increase in supply—a rightward shift of the supply
curve. This is shown by the rightward shift of the supply curve from S 1 to S 2 . Holding
price constant at $1, the quantity supplied rises from 10 billion pounds at point A on
S 1 to 12 billion pounds at point C on S 2 .

Understanding Shifts of the Supply Curve

Figure 6.4 on the next page illustrates the two basic ways in which supply curves can
shift. When economists talk about an “increase in supply,” they mean a rightward shift
of the supply curve: at any given price, producers supply a larger quantity of the good
than before. This is shown in Figure 6.4 by the rightward shift of the original supply
curve S 1 to S 2 . And when economists talk about a “decrease in supply,” they mean a left-
ward shift of the supply curve: at any given price, producers supply a smaller quantity
of the good than before. This is represented by the leftward shift of S 1 to S 3 .
Economists believe that shifts of the supply curve for a good or service are mainly the
result of five factors (though, as in the case of demand, there are other possible causes):
■ Changes in input prices
■ Changes in the prices of related goods or services
■ Changes in technology
■ Changes in expectations
■ Changes in the number of producers

module 6 Supply and Demand: Supply and Equilibrium 61