For given prices and technology, the total amount of any product supplied
depends on the number of firms producing that product and offering it for
sale. If profits are being earned by current firms, then more firms will
choose to enter this industry and begin producing. The effect of this
increase in the number of suppliers is to shift the supply curve to the
right. Similarly, if the existing firms are losing money, they will eventually
leave the industry; such a reduction in the number of suppliers shifts the
supply curve to the left. In Chapter 9 we will see this entry and exit of
firms as an important part of the long-run adjustment process in
industries.
Movements Along the Curve Versus Shifts
of the Whole Curve
As with demand, it is important to distinguish movements along supply
curves from shifts of the whole curve. Economists reserve the term
change in supply to describe a shift of the whole supply curve—that is,
a change in the quantity that will be supplied at every price. The term
change in quantity supplied refers to a movement from one point on a
supply curve to another point, either on the same supply curve or on a
new one. In other words, an increase in supply means that the whole
supply curve has shifted to the right, so that the quantity supplied at any
given price has increased; a movement up and to the right along a supply
curve indicates an increase in the quantity supplied in response to an
increase in the price of the product.