IB DP Economics - Unit 2 - Movements vs shifts in supply curve-Study Notes - New Syllabus

Movements Along the Supply Curve and Shifts of the Supply Curve

In supply analysis, it is essential to clearly distinguish between:

• Movement along the supply curve (change in quantity supplied)
• Shift of the supply curve (change in supply)

This distinction is fundamental for analysing firm behaviour and market outcomes.

• Price change → Movement
• Non-price change → Shift

Movement Along the Supply Curve (Change in Quantity Supplied)

A movement along the supply curve occurs when there is a change in the price of the good itself, with all other factors held constant (ceteris paribus).

• Only price changes cause movement along the curve.
• Represents a change in quantity supplied, not supply.
• Shown as movement from one point to another on the same supply curve.

Types of Movement:

Extension in supply:

• • Occurs when price rises.
  • Quantity supplied increases.
  • Movement upward along the curve.

Contraction in supply:

• • Occurs when price falls.
  • Quantity supplied decreases.
  • Movement downward along the curve.

Economic Logic:

• Higher prices increase profitability, encouraging more production.
• Lower prices reduce profitability, discouraging production.

Same curve → Different point

Shift of the Supply Curve (Change in Supply)

A shift of the supply curve occurs when there is a change in any non-price determinant of supply, affecting supply at every price level.

• Caused by factors such as costs of production, taxes, subsidies, technology, expectations, and number of firms.
• Represents a change in supply, not just quantity supplied.
• The entire supply curve moves to a new position.

Types of Shift:

Increase in supply:

• • Supply curve shifts to the right.
  • More is supplied at every price level.
  • Example: improvement in technology.

Decrease in supply:

• • Supply curve shifts to the left.
  • Less is supplied at every price level.
  • Example: increase in production costs.

Economic Logic:

• Lower costs increase profitability and encourage production.
• Higher costs reduce profitability and discourage production.

New curve → Supply changes at all prices

Detailed Comparison

Common Exam Mistakes (VERY IMPORTANT)

• Confusing “increase in supply” with “increase in quantity supplied”.
• Assuming price changes shift the supply curve (they do not).
• Not identifying the correct determinant (price vs non-price).
• Incorrect direction of shift.

Key Ideas:

• Price change → movement along supply curve
• Non-price change → shift of supply curve
• This distinction is critical for analysing market equilibrium.
• Always identify the cause before describing the effect.