FrontPage: What kinds of things do you think might affect the SUPPLY of a good or service? The Last Word: Ch 5 Review due Thursday; Quiz Thursday.

FrontPage: What kinds of things do you think might affect the SUPPLY of a good or service?

The Last Word: Ch 5 Review due Thursday;

Quiz Thursday

WHAT FACTORS AFFECT SUPPLY?

Chapter 5, Section 3

Or…

too much fun with memes.

Review: Changes in Quantity Supplied

A change in quantity supplied is a rise or fall in the amount producers offer for sale because of a change in price.

Smith Family’s Tomato Supply Curve

0 10 20 30 40 50

Pric

e pe

r po

und

($)

.50

.75

1.00

.25

1.25

1.50

1.75

2.00

Quantity supplied of tomatoes (lbs.)

Changes in Supply

A change in supply occurs when a change in the marketplace prompts producers to sell different amounts at every price.

This is seen as a shift of the entire supply curve.

There are 6 factors that impact supply.

Factor 1: Change in Input Costs

This is the price of the resources used to make products.o An increase in

input costs will lead to a decrease in supply.

o A decrease in input costs will lead to an increase in supply.

Ex. Tomato seeds rise in price.

0 10 20 30 40 50

Pric

e pe

r po

und

($)

.50

.75

1.00

.25

1.25

1.50

1.75

2.00

Quantity supplied of tomatoes (lbs.)

Ex. Tomato seeds fall in price.

0 10 20 30 40 50

Pric

e pe

r po

und

($)

.50

.75

1.00

.25

1.25

1.50

1.75

2.00

Quantity supplied of tomatoes (lbs.)

Factor 2: Change in Labor Productivity

Productivity = the amount of goods and services that a person can produce in a given time.An increase in

productivity will lead to an increase in supply.

A decrease in productivity will lead to a decrease in supply.

Factor 3: Changes in Technology This is the application of scientific methods and

innovations to production.An increase in technology will lead to an increase in

supply.A decrease in technology will lead to a decrease in

supply.

Factor 4: Government Actions

The impact of govt. action varies depending on whether it makes production more costly or less costly.

• An increase in taxes or regulations will lead to a decrease in supply.

• A decrease in taxes or regulations will lead to an increase in supply.

Factor 4: Government Action

On the other hand… An increase in subsidies (govt. aid to

business) will lead to an increase in supply.

A decrease in subsidies will lead to an decrease in supply.

Factor 5: Producer Expectations

If producers expect the price of their product to rise or fall in the future, it may affect how much of that product they are willing and able to supply in the present.

Factor 6: Change in # of Producers

If the number of producers increases, supply will increase.

If the number of producers decreases,

supply will decrease.