5.3 Changes in Factor Supply

Shifting the Factor Supply Curve

Factor supply (like labor supply) shifts when non-price determinants change, at every wage level. Key shifters for labor supply include changes in population, immigration, worker preferences (e.g., work vs. leisure), non-labor income, education/training levels, and wages in alternative occupations. A shift right means more resources offered at every price; a shift left means less.

Wage Rate vs. Supply Determinants

A change in the wage rate itself causes a movement along the existing labor supply curve (change in quantity supplied), not a shift. Only non-wage factors — like a rise in immigration or improved training programs — cause the entire curve to shift, changing the quantity of labor offered at every possible wage.

Market Effects of Supply Shifts

When factor supply increases (shifts right), the equilibrium factor price falls and equilibrium quantity employed rises, assuming demand is unchanged. When factor supply decreases (shifts left), equilibrium price rises and quantity employed falls. These shifts ripple into output markets by affecting production costs and firms' hiring decisions.

Key terms

Factor supply shift determinants (labor)

Population size, immigration, worker preferences, non-labor income, education/training, and wages in alternative jobs.

Movement along vs. shift of labor supply

A wage change causes movement along the curve; a non-wage determinant change causes the curve to shift.

Effect of increased factor supply

With demand constant, equilibrium factor price falls and equilibrium quantity employed rises.

Effect of decreased factor supply

With demand constant, equilibrium factor price rises and equilibrium quantity employed falls.

Example of leftward labor supply shift

A decrease in immigration or a stronger preference for leisure reduces labor offered at every wage.

Try an AP-style question

Immigration of workers into a region will…

1. decrease labor supply
2. increase labor demand only
3. increase labor supply
4. raise wages