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.

GOVERNMENT’S INFLUENCE ON 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?