Changes in supply

CHANGES IN SUPPLY

Brianna Coachman

INPUT COSTS

Effects of rising costs: A supplier sets

output at the most profitable level, where price is equal to marginal cost. If the cost of inputs increases enough, the marginal cost may become higher than the price, and the firm may not be as profitable as it could be. Supply falls at each price, and the supply curve shifts to the left.

Technology: Technology lowers costs

and increases supply at all price levels.

GOVERN MENT’S IN FLUEN CE O N SUPPLY

Subsidy: is a government payment or

discounted loan that supports a business or market. The government often pays a producer a set subsidy for each unit of a

good produced. Governments in developing countries often subsidize manufactures to protect young, growing industries from strong foreign competition.

CONTINUED…

Excise tax: is a tax on the production or sale of a good. An excise tax increases production costs by adding an extra cost for each unit sold. An excise cost can cause the supply of a good to decrease at all price levels.

Regulation: is government

intervention in a market that affects the price, quantity, or quality of a good.

SUPPLY IN THE GLOBAL ECONOMY

The supplies of imported goods are affected by changes in other countries. Import restrictions also affect the supply curves of restricted goods. If the government restricted imports by establishing an import quota, the supply curve would shift to the left, but the shift would be smaller than it would be for an absolute ban in sugar imports.

OTHER INFLUENCES ON SUPPLY

Future Expectations of Prices: If a seller expects the price of a good to rise in the future, the seller will store the goods now in order to sell more in the future. Expectations of higher prices will reduce supply now and increase supply later, and expectations of lower prices will have the opposite effect.

Number of Suppliers: If more suppliers enter the market to produce a certain good, the market supply of the good will rise, and the supply curve will shift to the right. There us a positive relationship between the number of suppliers in a market and the market supply of the good.

REAL WORLD EXAMPLE

Prices for fossil fuels have rose over the years, and electric companies have looked for alternative sources of supply, such as wind.

http://www.youtube.com/watch?v=7EhXOfg9FOM (2:30)

QUIZ

1. What are 3 factors that cause changes in supply?

2. Can technology help lower prices?

3. Why does the supply curve shift to the left?

4. True or False: Supplies of imported goods are not affected by changes in other countries.

5. Can regulations cause shifts in the supply curve?