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A Shifting Supply Curve

Regarding supply, notice that two types of changes can occur. The first is called a change in the quantity supplied, which results from a change in the price of the good or service. A change in the quantity supplied is illustrated by movement along the supply curve from one point to another.



The second is called a change in supply, which is caused when something in the market for a good or service changes. This could be a change in production costs, technology, the number of suppliers, government policies, expectations of future prices, or the price of other goods produced by the firm. These market changes make the original supply curve irrelevant. A change in supply is illustrated by a shift in the supply curve to the left or right.



You may have noticed that the words "price" and "cost" are not used interchangeably. A price is the amount of money a consumer pays for a good or service—the amount the supplier receives for the sale of a good or service. In the context of supply, cost refers to the amount the supplier pays to bring the good or service to market. In fact, to a producer, the difference between the price and the cost of producing the good is profit.

Profit = Price – Cost