Effect on supply curve of Good X when there is a:
(i) Fall in own price of Good X - When the price of a commodity falls, it leads to reduced profit margin of the producers, forcing them to sell lesser quantity. It is called as contraction in supply. There will be movement along the same supply curve towards the origin.
For e.g. When price falls from OP1 to OP2 in the given figure, quantity supplied contracts from OQ1 to OQ2 and the producer moves from point M to point N.
(ii) Rise in price of factor input producing Good X - When price of factor input producing Good X rises, profit margin of the producers fall, forcing them to produce less quantity of Good X at the given price. Supply curve will shift leftwards.
As in the figure, initially the producer was producing OQ quantity at OP price, if price of factor input increases, producer will now be willing produce less quantity say OQ’ at same price. Supply curve will shift leftwards from SS to ’’.
