The basic idea is that resources can be used in many ways in the economy. Labor, for example, may be used to produce a lot of things, including cars, lumber, machines, roads, houses, haircuts, garbage collection, legal services, health care or massages. The higher price of cars encourages entrepreneurs to shift resources from alternative uses to car production. It allows entrepreneurs to offer higher wages to attract labor from alternative uses. A movement along a supply curve is caused by the good s own price, and is called a change in quantity supplied.
Technological change reduces the resources that are needed to produce a good.
Changes in input prices Inputs include things such as labor, land, energy and steel. Changes in taxes or subsidies If the government puts a tax on the production of a good, it is like adding one more cost of production. The total cost of production must increase. This means that the supply price at any level of production that is, the price necessary to get an entrepreneur to shift resources over must increase to cover the tax. Changes in prices of goods that use the same inputs This will pull inputs away from the good whose relative price has fallen and shift them to the production of the good whose relative price has increased.