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Demand Demand-Supply-SupplyShift.gif pg-6
Supply Shifts Out if the Price Falls for Another Product of the Firm

Most firms make more than one product. For such firms, the supply curve of one of the goods it produces will be affected by changes in the market prices of other goods it produces. Suppose the graph to the right shows the supply curve for tennis balls produced by a sporting goods firm, and suppose this firm also makes and sells racquet balls.

The firm's supply for tennis balls is originally given by curve S1; its supply curve for racquet balls is not shown. Suppose the market price of racquet balls falls, making racquet balls less profitable than before. The profitability of making and selling tennis balls becomes relatively more profitable than it was before. In other words, the opportunity cost of making tennis balls has fallen, because giving up resources used to make racquet balls is less costly than before. This causes the tennis ball supply curve to shift out to S2. The firm is willing to supply more tennis balls at every price on curve S2, than it was when it's supply was given by S1.

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