How do subsidies affect a supply curve?

Economics I, markets

Shifts in the supply curve

If the providers offer a higher quantity of the good at the same price, the aggregated supply curve in the graphic shifts to the right. In this way, the consumers could buy a higher quantity of the good at the same price (step 1).

However, the customers only want to buy the larger quantity offered at a lower price. The new equilibrium point G2 with the new equilibrium price P2 and the new equilibrium quantity M2 (step 2) is where the ideas of the supplier and the customer meet after the supply curve has been shifted to the right.

above

If the providers offer a smaller amount of the good at the same price, the supply curve in the graphic shifts to the left. As a result, the customer could only buy a smaller amount of the good at the same price (step 1).

Inquirers are willing to buy the smaller amount offered at a higher price. The new equilibrium point G3 with the new equilibrium price P3 and the new equilibrium quantity M3 (step 2) is where the ideas of the supplier and the customer meet after the supply curve has shifted to the left.

The processes described are adjustment processes taking place on the market. These can run in several steps, in some cases (e.g. on the foreign exchange market) even "excessively" and they take some time. The better the markets are organized, i.e. the more transparent the information about market developments is for the providers and the consumers, the faster the adjustment processes run.

Adjustment processes almost always take place in the markets. It is they who open up new opportunities for suppliers and customers.

The providers could be induced to offer a higher offer at the same price by rationalizing their companies or by the necessity of having to orientate themselves towards a company with a high market share for reasons of competition. Marketing considerations based on expectations could also be the reason for such behavior. An example is the expectation that a new product, which could displace the old one, will come onto the market through a new domestic competitor or through import, and the marketing consideration that the old product will generate a lot of sales again in order to be able to use the " cash flow "(the cash receipts) to develop a new product as well.

Providers could be prompted to offer a lower offer at the same price, e.g. due to cost increases or pessimistic expectations.

The adjustment processes described take place at short notice. In the medium and long term, further adjustment processes are to be expected due to further shifts in the supply and demand curves, since the providers and the demanders adapt their operational possibilities or their purchase wishes to the changed situation after the short-term adjustment processes. The providers can, for example, rationalize and shift the supply curve back to the right (= down).

above