Chapter 5 Section 3 What factors affect supply?

Economics

Changes in Quantity Supplied Changes Along a Supply Curve

Change in quantity supplied does not shift the supply curve○ movement to right means increase in price

and quantity supplied○ movement to left means decrease in price

and quantity suppliedMarket supply curves show larger changes

than individual curves

Changes in quantity supplied do not shift the position of the supply curve. Why?

Changes in Supply

Change in supply—producers offer different amounts at every price

As production costs rise, supply drops; as costs drop, supply rises

Change in supply shifts the supply curve Six factors cause change in supply

Changes in Supply

Factor 1: Input CostsInput costs—price of resources needed to

produce good or service○ if price of resource increases, costs

increase○ if price of resource decreases, costs

decrease

Changes in Supply

Factor 2: Labor ProductivityLabor productivity—amount of product

worker can produce in set timeRise in productivity lowers production costs;

supply increasesSpecialization can allow producer to make

more goods at lower costBetter-trained workers produce more in less

time; decrease costs

Changes in Supply

Factor 3: TechnologyTechnology—use of scientific methods,

discoveries in production○ results in new products or manufacturing

techniquesManufacturers use technology to make

goods more efficientlyTechnology enables workers to be more

productive

Changes in Supply

Factor 4: Government ActionExcise tax—tax on production or sale of specific

good or service○ often placed on items that government wants to

discourage use of○ taxes increase producers’ costs; decrease supply

Regulation—set of rules, laws designed to control business behavior○ examples: banning use of certain resources,

worker safety laws

Changes in Supply

Factor 5: Producer ExpectationsProducers have expectations about future price of

their product○ expectations affect how much they will supply at

presentExpectations of higher price in future may lead to

different actions○ Farmer may withhold part of current crop and

decrease supply○ Manufacturer may buy more equipment to increase

future supply

Changes in Supply

Factor 6: Number of ProducersWhen one producer has successful new

idea, others enter the market○supply of good or service increases

Increase in number of producers leads to increased competition○may drive less-efficient producers out

of market

Questions Complete the chart below.

Factor That Changes Supply Reason Why Supply Changes

Questions1. How do each of these examples of government actions affect

the supply of gasoline?

a. In 2005, the government continued support for ethanol, a gasoline substitute.

b. The state of California requires a special blend of gasoline that meets stricter environmental standards than other regions in the country.

c. Many state use gasoline taxes to help fund highway construction and maintenance.

Questions

Why do you think governments want to influence the supply of alcohol and tobacco products by imposing excise taxes?

Questions

Complete the chart below for a manufacturer of MP3 players.

Example Change That Affects Supply Factor and How It Affected Supply

You give each worker in your factory a specialized job

Price of computer chips used in MP3 players rises

New machinery speeds up the manufacturing process

Your success prompts three new companies to start producing MP3 players

A new law requires producers to recycle the wastewater from their factories.