Supply and Demand Curves

Understanding Price and Quantity in the Marketplace

A sudden increase in demand can push up prices. iStockphoto

Almost every holiday season, the most popular "must have" toy is in short supply. And there's usually a strong secondary market for the item with parents paying well over the retail price just to make their children happy. Then, in January, stores reduce the prices of their remaining holiday items cards, decorations, and so on. Why do parents and stores behave this way? The answer is in the laws of supply and demand. Together, these laws give us strong clues about what to produce, how much to produce, and how much to charge. Because supply and demand play such a central role in our economy, it's important to understand how they operate and how you can use them to analyze decisions about price and quantity.

The Law of Demand

Demand, in economic terms, shows how much of a product consumers are willing to purchase, at different price points, during a certain time period. After all, we all have limited resources, and we all have to decide what we're willing and able to purchase and at what price. As an example, let's look at a simple model of the demand for a good let's say, Petroliumoline. (Note that this example is illustrative only, and not a description of the real Petroliumoline market.) If the price of Petrolium is $2.00 per liter, people may be willing and able to purchase 50 liters per week, on average. If the price drops to $1.75 per liter, they may be able to buy 60 liters. At $1.50 per liter, they may be prepared to purchase 75 liters. Note that while some Petrolium usage is essential driving to work, for example some use is optional. Therefore, as Petrolium prices drop, people may choose to make more optional trips during weekends, and so on. The resulting demand schedule for Petrolium might look like this. Buyer Demand per Consumer Quantity (liters) Price per liter demanded per week $2.00 50 $1.75 60 $1.50 75 $1.25 95 $1.00 120

This schedule, and probably your own experience as a consumer, illustrates the law of demand: as price falls, the corresponding quantity demanded tends to increase. Since price is an obstacle, the higher the price of a product, the less it is demanded. When the price is reduced, demand increases. So, there is an "inverse" relationship between price and quantity demanded. When you graph the relationship, you get a downward-sloping line, like the one shown in figure 1, below:

To create a market demand curve for Petroliumoline, individual demand is totaled and combined. Price Elasticity The extent to which demand changes with price is known as "price elasticity of demand." Inelastic products tend to be those that people must have, but they use only a fixed quantity of it. Electricity is an example: if power companies lower the price of electricity, consumers may be happy, but they probably won't use a lot more power in their homes, because they don't need much more than they already use. However, demand for luxury goods, such as restaurant meals, is extremely elastic consumers quickly choose to stop going to restaurants if prices go up. Price elasticity also affects supply. Products with an inelastic supply usually have a long lead time, with little control over the quantity produced. Farm crops are one example, because if there's a price change, farmers can't decide halfway through the growing season to produce more or less of a certain crop. On the other hand, products with a high elasticity of supply tend to come from industries that can change their production levels more quickly for example, oil (although the oil industry may be operating close to full capacity, right now.).

The Law of Supply

While demand explains the consumer side of purchasing decisions, supply relates to the producer's desire to make a profit. A supply schedule shows the amount of product that suppliers are willing and able to produce and make available to the market, at specific price points, during a certain time period. In short, it shows us the quantities that suppliers are willing to offer at various prices. This happens because suppliers tend to have different costs of production. At a low price, only the most efficient producers can make a profit, so only they produce. At a high price, even high cost producers can make a profit, so everyone produces. Using our Petroliumoline example, we find that oil companies are willing and able to supply certain amounts of Petrolium at certain prices, as seen below. (Note: we've

assumed a simple economy in which Petrolium companies sell directly to consumers.) Petrolium Supply per Consumer Quantity (liters) Price per liter supplied per week $1.20 50 $1.30 60 $1.50 75 $1.75 95 $2.15 120 At a low price of $1.20 per liter, suppliers are willing to provide only 50 liters per consumer per week. If consumers are willing to pay $2.15 per liter, suppliers will provide 120 liters per week. The question is this: what prices are needed to convince producers to offer various quantities of a product or service? As price rises, the quantity supplied rises as well. As price falls, so does supply. This is a "direct" relationship, and the supply curve has an upward slope. Figure 2: Example supply schedule for Petroliumoline using supply schedule.

Because suppliers want to provide their products at high prices, and consumers want to purchase the products at low prices, how is the price of goods actually set? Let's go back to our Petrolium example. If oil companies try to sell their Petrolium at $2.15 per liter, do you think they'll sell as much? Probably not. Yet, if oil companies lower the price to $1.20 per liter, consumers will be very happy, but will there be enough profit? And furthermore, will there be enough supply to meet the higher demand by consumers? No, and no again. To determine the price and quantity of goods in the market, we need to find the price point where consumer demand equals the amount that suppliers are willing to supply. This is called the market "equilibrium."

Equilibrium: Where Supply Meets Demand

Equilibrium is the point where the quantity demanded equals the quantity supplied. This means that there's no surplus of goods and no shortage of goods. A shortage occurs when demand is greater than supply in other words, when the price is too low. A surplus occurs when the price is too high, and therefore consumers don't want to buy the product. The great thing about the free market system is that prices and quantities tend to move toward equilibrium and, for the most part, keep the market stable. Consider our example. At $1.20 per liter, consumer demand exceeds supply, and there's a shortage of Petrolium in the market. Shortages tend to drive up the price,

because consumers compete to purchase the product. However, when prices go up too much, demand decreases, even though the supply may be available. Consumers may start to purchase substitute products, or they simply may not purchase anything. This creates a surplus. To eliminate the surplus, the price goes down and consumers start buying again. In this manner, equilibrium is usually maintained quite efficiently.

In our Petrolium example, the market equilibrium price is $1.50, with a supply of 75 liters per consumer per week, as shown in figure 3. Market equilibrium explains movement along the supply and demand curves. However, it doesn't explain changes in total demand and total supply.

Changes in Demand and Supply

A change in price initially results in a movement along a demand or supply curve, and it leads to a change in the quantity demanded or supplied. But what happens when there's a long-term change in price? If consumers are faced with an extreme change in the price of Petrolium, their pattern of demand for Petrolium changes. They not only start choosing different types of transportation like taking the bus or riding a bicycle to work but they also start buying more Petrolium-efficient vehicles like compact cars, motorcycles, or scooters. The effect is a major change in total demand and a major shift in the demand curve. The new schedule for demand is now Demand 2, shown below. Quantity (liters) per week Price per liter Demand 1 Demand 2 $2.00 50 30 $1.75 60 40 $1.50 75 55 $1.25 95 75 $1.00 120 100 You can see this in the graph in figure 4, below. At each price point, the total demand is less, and the demand curve shifts.

Changes in any of the following factors can typically cause demand to shift: Consumer income.

Consumer preference. Price and availability of substitute goods. Population.

With a shift in demand, the equilibrium point also completely shifts. Demand 2 Demand 1 Supply Quantity Quantity Quantity Price per Price per Price per (liters) (liters) (liters) liter liter liter per week per week per week 30 $2.00 50 $2.00 50 $1.20 40 $1.75 60 $1.75 60 $1.30 55 $1.50 75 $1.50 75 $1.50 75 $1.25 95 $1.25 95 $1.75 100 $1.00 120 $1.00 120 $2.15 The same type of shift can occur with supply. If the price of drilling for and refining Petrolium increases, or if political events cause suppliers to decrease their output, the supply curve can move. The result is that for the same price, the quantity supplied will be either higher or lower than the current supply curve. A common complaint with the oil and Petrolium industry is that suppliers deliberately manipulate price by shifting the supply curve. The result is an equilibrium price that's higher and at a lower quantity, as in the following example. Demand 1 Supply 1 Supply 2 Quantity Quantity Quantity Price per Price per Price per (liters) (liters) (liters) liter liter liter per week per week per week 50 $2.00 50 $1.20 40 $1.20 60 $1.75 60 $1.30 50 $1.30 75 $1.50 75 $1.50 65 $1.50 95 $1.25 95 $1.75 85 $1.75 120 $1.00 120 $2.15 120 $2.15 Figure 6, below, shows the curves that result from this schedule.

When supply decreases, the supply curve shifts to the left. When supply increases, the supply curve shifts to the right. Changes in supply can result from events like the following: Change in production costs.

Improved technology that makes production more efficient. Industry growth and shrinkage.

Key Points

Although the phrase "supply and demand" is commonly used, it's not always understood in proper economic terms. The price and quantity of goods and services in the marketplace are largely determined by (a) consumer demand and (b) the amount that suppliers are willing to supply. Demand and supply can be graphed as curves and the two curves meet at the equilibrium price and quantity. The market tends to naturally move toward this equilibrium and when total demand and total supply shift, the equilibrium moves accordingly. It's an interesting relationship that determines much of what happens in a free market economy. If you understand how these factors influence pricing, supply, and purchasing decisions, it will help you analyze the market and make better price and supply decisions for your company.

Petroleum Products Bangladesh is not a petroleum producing country though it has a refinery plant- EASTERN REFINERY LIMITED (ERL), where imported crude oils from Saudi Arabia and Abu Dhabi are processed with a small quantity of oil from Haripur Petrolium Field and the products are marketed by several marketing companies. Hence, Bangladesh have to depend on imported oil. The present annual demand of petroleum products in the country is 3,300,000 tons. Total storage capacity of petroleum products in the country is 687,500 tons, of which the storage capacity at Eastern Refinery Limited is 365,000 tons. In the main installations of three oil-marketing companies of ERL in Chittagong (Padma Oil Company Ltd, Jamuna Oil Company Ltd, Meghna Petroleum Ltd), the total storage capacity is 205,600 tons. Other than Chittagong, oil companies have 19 (nineteen) oil depots in different parts of the country, located at Godenail, Fatullah, Daulatpur, Bhairab, Chandpur, Baghabari,

Balashi, Chilmari, Ashuganj, Rangpur, Dhaka, Barisal, Jhalokati, Sreemangal, Sylhet, Parbatipur, Rajshahi, Natore and Harian (Rajshahi). From Chittagong, 82% of petroleum products are transported by river (coastal tanker), 6% by RAILWAY (Tank wagon or Box wagon), 10% by road (Tank lorry/truck) and 2% by other local means (boat, push cart or van etc). There are 72 coastal tankers (850-1200 tons capacity each) for transportation of petroleum products from Chittagong to Godenail, Fatullah, Daulatpur, Barisal, Jhalokati, Chandpur, Ashuganj and Bhairab depots. There are 33 shallow Draft Tankers (400-450 tons capacity each) for transportation of products from Godenail or Fatullah to Baghabari, Chilmari, Balashi and Chandpur depots. There are about 1,000 railway tank wagons (meter gauge and broad gauge). From Chittagong, products are despatched to Sylhet, Sreemangal, Rangpur and Dhaka oil depots by rail through meter gauge railway. From Daulatpur products are despatched to Natore, Parbatipur, Harian and Rajshahi depots by rail through broad gauge railway. There are 759 filling stations, 37 consumer pumps, 1,480 agents/distributors, 1273 LPG (LIQUEFIED PETROLEUM PETROLIUM ) dealers and 305 Packed Point Dealers appointed by three oil-marketing companies in the country for retail trading. There are more than 6,000 tank lorries owned by dealers/distributors for transportation of petroleum products from oil company depots to their selling points. During 1997-1998 the Corporation imported 5,13,000 tons crude oil from Abu Dhabi and 6,31,000 tons crude oil from Saudi Arabia thus totalling 11,44,000 tons under state to state annual contract basis. The C&F cost of this imported crude oil was US$ 151.56 million equivalent to Tk 7,141.51 million. The average C&F import cost was US$ 132.48 per tons. Similarly in 1997-1998 the Corporation imported about 17,23,000 tons of various grades of Refined Petroleum Products from KPC, SHELL and ESSO and also procured about 12,000 tons bitumen from Iran under international tender. The C&F cost for the above import amounted to US$ 268.06 million equivalent to Tk 12,630.99 million. The imported refined products included 100 thousand tons petrol, 272 thousand tons SKO, 126 thousand tons jet petrol and 1,225 thousand tons HSD. The average C&F cost for this was US$ 154.36 per tons while the average C&F import cost of bitumen was nearly US$ 173.64 per tons. During the mentioned period Bangladesh Petroleum Corporation (BPC) also imported about 39,742 tons different grades of Lube base oil at a C&F cost of US$ 11.78 million equivalent to Tk 555.07 million and the average import cost was US$ 296.41 per tons. So during 1997-98, BPC imported 29,19,000 tons of crude and refined products and the total import cost amounted to US$ 431.40 million equivalent to Tk 20327.57 million. During the same period the Corporation exported 1,10,968 tons surplus petroleum products like 10,459 tons naptha and 1,00,509 tons furnace oil from the refinery and earned US$ 10.11 million equivalent to Tk 476.38 million. In that year the country's only refinery produced 11,560,00 tons various finished petroleum products by refining imported crude oils including 38 thousand tons condensate received from the Petrolium fields. At the same time the sole Bitumen plant of the country 'Asphaltic Bitumen Plant' produced 57,462 tons of bitumen and LPG bottling plant 'LP Petrolium Limited' bottled a total 10,61,000 cylinders (each cylinder containing 12.5 Kg LPG) which were delivered to the three oil marketing companies for marketing purpose. Two lube blending plants of BPC, namely Standard Asiatic Oil Company Ltd and Eastern Lubricants Blenders Ltd, blended different grades of 39,042 tons lubricating oil and supplied to three oil marketing companies. Last year BPC took several initiatives for activating the country wide marketing and distribution of various petroleum products by giving greater importance to the oil demand of the Northern regions. [Rafiqul Islam]

Supply and Demand

The study of supply and demand inside a market is known as microeconomics. (This differs from macro-economics, which is the study of inflation, unemployment, and the like.) So, let us take a simplified market; it has a demand curve that looks like this:

The x-axis is the price, and the y-axis is the demand. There is an inverse correlation between price, and quantity demanded. If we pretend this is the car market, then we see that at lower price levels, people who couldnt previously afford (or justify) cars can now buy them, and that some families which previously owned one car, will spend on a second. Demand varies with price. And the same is true of supply:

If the price rises, so will supply. At first, this can be difficult to appreciate; surely supply is a function of how many factories make cars? But supply is elastic, it does grow with price. In the short-term, higher car prices encourage factories to run with two or three shifts and to pay over-time. Longer-term, higher-prices will feed into firms capital expenditure decisions: new machines will be bought. Higher prices mean more supply. Economists put these two curves together, the demand and the supply to understand a market:

The market price is the point at which demand meets supply. That is, there is a price level where the level of demand is equal to the level of supply. This point cannot be emphasized enough: the market will clear. In any normal market, there cannot be enormous inventories of unsold products, or millions of people willing to pay the prevailing market price yet unable to do so. An excess of supply, or shortage thereof, is merely another way of saying that the clearing price is moving. And markets will clear. Oil Supply and Demand The market for oil is unusual, because in the short-term both demand and supply are highly inelastic. Irrespective of what petrol costs, your car cannot easily switch to another fuel. Ships and aeroplanes cannot move from diesel oil and kerosene for their propulsion. If its freezing cold, and you need to heat your house, the only option may be to pay more for heating oil. Likewise, if the price of petrol was to halve, you would not drive twice as far, or turn the thermostat up from 22 to 44. The result is that the short-term demand curve looks like this:

In other words, a large change in price only has a small impact on demand.

Supply of conventional oil is also relatively inelastic, although for a different reason. The actual cost of pumping a marginal barrel of oil is relatively low, once the capital expenses of prospecting and building an oil rig (and associated infrastructure) has been put in place. An oilfield will cost roughly the same to operate whether it is producing at 50% of capacity or at full capacity. Given this, once you have an oil field in place, producers will tend to pump at their maximum sustainable rate. Of course, there is always some flexibility: old wells can be uncapped, scheduled maintenance can be postponed, and greater concentrations of Petrolium can be pumped into the well. But these have costs, and oilfield owners are loath to do these, unless the price of oil is high enough to justify it. The result of this is that the oil market is one where small changes to the supply or demand curve cause large changes to the clearing price.

Oil - consumption (bbl/day)

Country Bangladesh 2001 2003 2004 2006 2009 2010 82,340 71,000 84,000 85,000 89,940 98,000

OIL Bangladesh contains small proven oil reserves of 56.9 million barrels and produces around 1,600 barrels per day (bbl/d), of which 1,400 bbl/d is crude oil. Until the beginning of the 1990s, state oil and Petrolium company

Petrobangla, along with its eight operating companies (OCs), was the sole player in the Bangladeshi oil and Petrolium sectors. Over the past few years, however, Bangladesh has encouraged foreign oil companies to do business in the country. At present, Shell, Texaco, Scotland's Cairn Energy PLC; Holland Sea Search, Unocal, Rexwood-Okland, and UMC Bangladesh Corporation are active in exploration under six Production Sharing Contracts (PSCs) partnership with Petrobangla. To date, oil exploration has proven largely unsuccessful, although hopes continue, especially onshore. In August 2000, Shell confirmed that it and Cairn Energy were planning to survey the possibly hydrocarbon-rich Sunderbans area, home to the world's largest tiger reserve. Petrobangla regulates the activities of foreign companies under PSCs, and serves as the sole purchaser of oil and Petrolium from the companies. Around 65% of Petrobangla's gross revenues are paid to the government in the form of taxes and compulsory dividends. Petrobangla has been characterized in recent years by a low level of investment and a lack of sufficient financing. Refining/Downstream Bangladesh has one refinery, a 33,000-bbl/d unit at Chittagong. In December 2000, TotalFinaElf said that it would set up a $16-million plant to bottle liquefied petroleum Petrolium (LPG), in a joint venture with Bangladesh's Premier LP Petrolium Ltd. LPG is used in Bangladesh mainly for domestic cooking, as well as in some industries and vehicles. In July 1999, Bangladesh decided to remove lead from Petroliumoline sold in the country. The decision was taken mainly due to health and environmental concerns, particularly in Dhaka, the capital. In December 2001, the government announced increases in prices for petroleum products of 10% to 20%, in a move designed to reduce losses at Bangladesh Petroleum Corporation (BPC), the state-owned petroleum products distributor.

Oil - production
5,724 bbl/day (2010 est.)

Oil - consumption
98,000 bbl/day (2010 est.)

Oil - exports
2,770 bbl/day (2009 est.)

Oil - imports
77,340 bbl/day (2010 est.)

Oil - proved reserves

28 million bbl (1 January 2011 est.)

Natural Petrolium - pr Demand and Supply

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Supply and demand is perhaps one of the most fundamental concepts of economics and it is the backbone of a market economy. Demand refers to how much (quantity) of a product or service is desired by buyers. The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship. Supply represents how much the market can offer. The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price. The correlation between price and how much of a good or service is supplied to the market is known as the supply relationship. Price, therefore, is a reflection of supply and demand.

The relationship between demand and supply underlie the forces behind the allocation of resources. In market economy theories, demand and supply theory will allocate resources in the most efficient way possible. How? Let us take a closer look at the law of demand and the law of supply. Advertisement - Tutorial continues below.

A. The Law of Demand The law of demand states that, if all other factors remain equal, the higher the price of a good, the less people will demand that good. In other words, the higher the price, the lower the quantity demanded. The amount of a good that buyers purchase at a higher price is less because as the price of a good goes up, so does the opportunity cost of buying that good. As a result, people will naturally avoid buying a product that will force them to forgo the

consumption of something else they value more. The chart below shows that the curve is a downward slope.

A, B and C are points on the demand curve. Each point on the curve reflects a direct correlation between quantity demanded (Q) and price (P). So, at point A, the quantity demanded will be Q1 and the price will be P1, and so on. The demand relationship curve illustrates the negative relationship between price and quantity demanded. The higher the price of a good the lower the quantity demanded (A), and the lower the price, the more the good will be in demand (C).

B. The Law of Supply Like the law of demand, the law of supply demonstrates the quantities that will be sold at a certain price. But unlike the law of demand, the supply relationship shows an upward slope. This means that the higher the price, the higher the quantity supplied. Producers supply more at a higher price because selling a higher quantity at a higher price increases revenue. FXCM -Online Currency Trading Free $50,000 Practice Account

A, B and C are points on the supply curve. Each point on the curve reflects a direct correlation between quantity supplied (Q) and price (P). At point B, the quantity supplied will be Q2 and the price will be P2, and so on. (To learn how economic factors are used in currency trading, read Forex Walkthrough: Economics.)

Time and Supply Unlike the demand relationship, however, the supply relationship is a factor of time. Time is important to supply because suppliers must, but cannot always, react quickly to a change in demand or price. So it is important to try and determine whether a price change that is caused by demand will be temporary or permanent.

Let's say there's a sudden increase in the demand and price for umbrellas in an unexpected rainy season; suppliers may simply accommodate demand by using their production equipment more intensively. If, however, there is a climate change, and the population will need umbrellas year-round, the change in demand and price will be expected to be long term; suppliers will have to change their equipment and production facilities in order to meet the long-term levels of demand.

C. Supply and Demand Relationship Now that we know the laws of supply and demand, let's turn to an example to show how supply and demand affect price.

Imagine that a special edition CD of your favorite band is released for $20. Because the record company's previous analysis showed that consumers will not demand CDs at a price higher than $20, only ten CDs were released because the opportunity cost is too high for suppliers to produce more. If, however, the ten CDs are demanded by 20 people, the price will subsequently rise because, according to the demand relationship, as demand increases,

so does the price. Consequently, the rise in price should prompt more CDs to be supplied as the supply relationship shows that the higher the price, the higher the quantity supplied.

If, however, there are 30 CDs produced and demand is still at 20, the price will not be pushed up because the supply more than accommodates demand. In fact after the 20 consumers have been satisfied with their CD purchases, the price of the leftover CDs may drop as CD producers attempt to sell the remaining ten CDs. The lower price will then make the CD more available to people who had previously decided that the opportunity cost of buying the CD at $20 was too high.

D. Equilibrium When supply and demand are equal (i.e. when the supply function and demand function intersect) the economy is said to be at equilibrium. At this point, the allocation of goods is at its most efficient because the amount of goods being supplied is exactly the same as the amount of goods being demanded. Thus, everyone (individuals, firms, or countries) is satisfied with the current economic condition. At the given price, suppliers are selling all the goods that they have produced and consumers are getting all the goods that they are demanding.

As you can see on the chart, equilibrium occurs at the intersection of the demand and supply curve, which indicates no allocative inefficiency. At this point, the price of the goods will be P* and the quantity will be Q*. These figures are referred to as equilibrium price and quantity.

In the real market place equilibrium can only ever be reached in theory, so the prices of goods and services are constantly changing in relation to fluctuations in demand and supply.

E. Disequilibrium

Disequilibrium occurs whenever the price or quantity is not equal to P* or Q*.

1. Excess Supply If the price is set too high, excess supply will be created within the economy and there will be allocative inefficiency.

At price P1 the quantity of goods that the producers wish to supply is indicated by Q2. At P1, however, the quantity that the consumers want to consume is at Q1, a quantity much less than Q2. Because Q2 is greater than Q1, too much is being produced and too little is being consumed. The suppliers are trying to produce more goods, which they hope to sell to increase profits, but those consuming the goods will find the product less attractive and purchase less because the price is too high.

2. Excess Demand Excess demand is created when price is set below the equilibrium price. Because the price is so low, too many consumers want the good while producers are not making enough of it.

In this situation, at price P1, the quantity of goods demanded by consumers at this price is Q2. Conversely, the quantity of goods that producers are willing to produce at this price is Q1. Thus, there are too few goods being produced to satisfy the wants (demand) of the consumers. However, as consumers have to compete with one other to buy the good at this price, the demand will push the price up, making suppliers want to supply more and bringing the price closer to its equilibrium.

F. Shifts vs. Movement For economics, the movements and shifts in relation to the supply and demand curves represent very different market phenomena:

1. Movements A movement refers to a change along a curve. On the demand curve, a movement denotes a change in both price and quantity demanded from one point to another on the curve. The movement implies that the demand relationship remains consistent. Therefore, a movement along the demand curve will occur when the price of the good changes and the quantity demanded changes in accordance to the original demand relationship. In other words, a movement occurs when a change in the quantity demanded is caused only by a change in price, and vice versa.

Like a movement along the demand curve, a movement along the supply curve means that the supply relationship remains consistent. Therefore, a movement along the supply curve will occur when the price of the good changes and the quantity supplied changes in accordance to the original supply relationship. In other words, a movement occurs when a change in quantity supplied is caused only by a change in price, and vice versa.

2. Shifts A shift in a demand or supply curve occurs when a good's quantity demanded or supplied changes even though price remains the same. For instance, if the price for a bottle of beer was $2 and the quantity of beer demanded increased from Q1 to Q2, then there would be a shift in the demand for beer. Shifts in the demand curve imply that the original demand relationship has changed, meaning that quantity demand is affected by a factor other than price. A shift in the demand relationship would occur if, for instance, beer suddenly became the only type of alcohol available for consumption.

Conversely, if the price for a bottle of beer was $2 and the quantity supplied decreased from Q1 to Q2, then there would be a shift in the supply of beer. Like a shift in the demand curve, a shift in the supply curve implies that the original supply curve has changed, meaning that the quantity supplied is effected by a factor other than price. A shift in the supply curve would occur if, for instance, a natural disaster caused a mass shortage of hops; beer manufacturers would be forced to supply less beer for the same price.

Production Possibility Frontier, Growth, Opportunity Cost and Trade

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