Contraction of Supply and Decrease in Supply often seems similar but is different from one another. Contraction of Supply is defined as a decrease in quantity the seller wishes to sell when there is a fall in own price of the commodity. Whereas, a Decrease in Supply is defined as a decrease in quantity the seller wishes to sell due to changes in other factors, other than own price of the commodity.
Contraction of Supply leads to a downward shift in the supply curve, while Decrease in Supply leads to a leftward shift of the supply curve.
What is Contraction of Supply?
When there is a contraction in the quantity supplied of a commodity because of a fall in the commodity's price by keeping other factors constant, it is known as a Contraction of Supply. The contraction in supply results in a downward movement along the same supply curve.
Price (₹) | Quantity (in units) |
|---|---|
15 | 150 |
10 | 100 |
Here, at ₹15, the seller is willing to sell 150 units of goods; however, at ₹10, the seller is willing to sell 100 units of goods. This scenario shows that the decrease in prices of the goods will lead to a decrease in quantity supplied (other factors remain constant); i.e., Contraction of Supply.
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Here, S is the initial supply curve showing the relationship between the quantity supplied and price of the commodity. Quantity Supplied is shown on the Y-axis and Price is shown on the X-axis. When the price falls from ₹15 to ₹10, the quantity supplied contracts from 150 units to 100 units (also known as the Contraction of Supply), which results in a downward movement from B to A along the same supply curve SS.
What is Decrease in Supply?
A decrease in the supply of a commodity due to factors other than the own price of the commodity is known as a Decrease in Supply. In simple terms, the supply for a commodity decreases at the same price, because of changes in other factors, other than own prices of the commodity. A decrease in supply results in a leftward shift in the supply curve.
Price (₹) | Quantity (in units) |
|---|---|
15 | 75 |
15 | 50 |
Here, at ₹15, initially, the seller is willing to sell 75 units; however, at the same price of ₹15, the seller is willing to sell 50 units of commodity. This decrease in supply is caused by changes in other factors of supply, other than own price of the commodity.
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Here, the quantity supplied is shown on the X-axis and price is shown on the Y-axis. S1S1 is the initial supply curve showing 75 units of quantity supplied at ₹15. An increase in supply from 75 units to 50 units at the same price of ₹15, causes a leftward shift in the supply curve from S1S1 to S2S2.
Difference between Contraction of Supply and Decrease in Supply
Basis | Contraction of Supply | Decrease in Supply |
|---|---|---|
Meaning | A decrease in quantity supplied due to a decrease in price while all other factors remain constant is known as Contraction of Supply. | A decrease in supply as a result of a change in variable other than the commodity's price is known as a Decrease in Supply. |
Effect on Supply Curve | It results in a downward movement in the same supply curve. | It results in a shift in the supply curve in the leftward direction. |
Reason | It happens due to a decrease in the price of the given commodity. | It occurs as a result of other factors, such as a decrease in the price of substitute and complementary goods, a decrease in income levels, etc. |