Shifts of the Supply Curve

As we described in the opening story, innovations in the technology of drilling natural gas deposits have recently led to a huge increase in U.S. production of natural gas—a 30% increase in daily production from 2005 through 2014. Figure 3-7 illustrates these events in terms of the supply schedule and the supply curve for natural gas. The table in Figure 3-7 shows two supply schedules. The schedule before improved natural gas–drilling technology was adopted is the same one as in Figure 3-6. The second schedule shows the supply of natural gas after the improved technology was adopted.

An Increase in Supply The adoption of improved natural gas-drilling technology generated an increase in supply—a rise in the quantity supplied at any given price. This event is represented by the two supply schedules—one showing supply before the new technology was adopted, the other showing supply after the new technology was adopted—and their corresponding supply curves. The increase in supply shifts the supply curve to the right.

A shift of the supply curve is a change in the quantity supplied of a good or service at any given price. It is represented by the change of the original supply curve to a new position, denoted by a new supply curve.

Just as a change in demand schedules leads to a shift of the demand curve, a change in supply schedules leads to a shift of the supply curve—a change in the quantity supplied at any given price. This is shown in Figure 3-7 by the shift of the supply curve before the adoption of new natural gas–drilling technology, S1, to its new position after the adoption of new natural gas–drilling technology, S2. Notice that S2 lies to the right of S1, a reflection of the fact that quantity supplied rises at any given price.

A movement along the supply curve is a change in the quantity supplied of a good arising from a change in the good’s price.

As in the analysis of demand, it’s crucial to draw a distinction between such shifts of the supply curve and movements along the supply curve—changes in the quantity supplied arising from a change in price. We can see this difference in Figure 3-8. The movement from point A to point B is a movement along the supply curve: the quantity supplied rises along S1 due to a rise in price. Here, a rise in price from $3 to $3.50 leads to a rise in the quantity supplied from 10 trillion to 11.2 trillion BTUs of natural gas. 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 S1 to S2. Holding the price constant at $3, the quantity supplied rises from 10 trillion BTUs at point A on S1 to 12 billion pounds at point C on S2.

Movement Along the Supply Curve versus Shift of the Supply Curve The increase in quantity supplied when going from point A to point B reflects a movement along the supply curve: it is the result of a rise in the price of the good. The increase in quantity supplied when going from point A to point C reflects a shift of the supply curve: it is the result of an increase in the quantity supplied at any given price.