## The Supply Curve Shifts

Instructor: Alex Tabarrok, George Mason University

This video explores factors that shift the supply curve. How do technological innovations, input prices, taxes and subsidies, and other factors affect a firm’s

This video explores factors that shift the supply curve. How do technological innovations, input prices, taxes and subsidies, and other factors affect a firm’s costs and the price at which the firm is willing to sell a good? By answering these questions we have a better idea of how the supply curve will shift. This video walks you through examples and scenarios that illustrate this concept.

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If the change is from nontradable quotas to tradable quotas, then the supply curve shifts to the right.
The principle is to ask how does _a change_ affect the overall production cost of an industry. If it increases the cost, then the supply curve shifts left. It it decreases the cost, the supply curve shifts right.
Now let's take fishing and evaluate the overall production cost before the change, and after the change.
In our case the change is the policy that quotas are now tradable.
Imagine that you and I are the only fishermen in a fishermen community. The supply curve shows what quantity we are, together, as an industry, able to supply at any given price. The total quota is, say, 20, with the restriction that we fish 10 pounds each. I have the right to fish 10 pounds but sometimes I get sick and I am only able to fish 9. I can't reach my quota. But neither can I sell the right to catch that pound to you, who are healthy and could easily work an extra hour. So together we supply 19. After the change, namely after we can trade, I can sell you my right to fish until you reach the total quota. We constantly produce 20 now. The change has removed a restriction within the fishing industry which decreased the costs of production. Therefore, the curve shifts to the right.
The same argument for a polluting industry, say, steel. After the change, it will be less costly for the inductry as a whole to produce steel. The quantity of steel produced, and of course, the quantity of pollution that come with it, will increase.
If however you mean that _the change_ is from a regime of no quotas and no restrictions at all to a regime of tradable quotas, then the supply curve shifts to the left.