Difference between Contraction of Supply and Decrease in Supply

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  Learning Contents:                                                            

·         Difference between Contraction of Supply and Decrease in Supply.


Difference between Contraction of Supply and Decrease in Supply

  Basis

    of

Difference

 

   Contraction of Supply

 

  Decrease in Supply

 

Meaning

When quantity supplied for a commodity falls due to fall in the price, keeping other factors as constant is called contraction of supply.

When supply for a commodity decreases due to change in other factors, keeping price as constant is called decrease in supply.

Cause

Fall in price of the commodity is 

the sole cause for the contraction

of supply.

Several causes such as:

a. Change of firm’s objective from sales maximization to profit maximization.

b. When firm is operating on an outdated technology.

c. Government imposes more taxes and grants less subsidies.

d. Decrease in number of firms in the industry.

e. Expectation about commodity’s price to rise in future, etc.

 

Effect on Demand     curve

It is shown as downward 

movement from right to left 

on the same supply

curve.

 

It is shown as  backward or leftward shift

in the supply curve.

Concept

It is a quantity supplied concept.

 

It is a supply concept.

 

Drawn as

 





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