SUPPLYFactors that shift supply

TODAY’S AGENDA

Objective: To identify the factors that shift supply and which direction the curve shifts.

Essential Skill: To explicitly assess information and draw conclusions.

Change in quantity supplied (a movement along the curve)

CHANGE IN QUANTITY SUPPLIED

Pri

ce (

per

un

it)

Quantity supplied (per unit of time)

S0

$15A

1,250 1,500

B

SHIFT IN SUPPLY

Pri

ce (

per

un

it)

Quantity supplied (per unit of time)

S0

Shift in Supply(a shift of the curve)

S1

$15A B

1,250 1,500

NON-PRICE DETERMINANTS OF SUPPLY:FACTORS THAT SHIFT THE SUPPLY CURVE

“ROTTEN”

“R” IS FOR RESOURCE

Changes in resource prices or input costs

Elements of nature and political disruptions

“O” IS FOR OTHER

Change in Prices of other goods produced and offered for sale

“T” IS FOR TECHNOLOGY

Changes in technology

“T” IS FOR TAXES

Changes in taxes and subsidies

“E” IS FOR EXPECTATIONS

Change in expected future prices, (producer) expectations

“N” IS FOR NUMBER

Change in the number of suppliers in the market

Elements of nature and political disruptions

NON-PRICE DETERMINANTS OF SUPPLY

Changes in resource prices or input costs Elements of nature and political disruptions

Change in Prices of other goods produced and offered for sale

Changes in technology Changes in taxes and subsidies Change in Expected future prices (producer) expectations

Change in the number of suppliers in the market Elements of nature and political disruptions

QUICK TIP

Any factor that increases the cost of production decreases supply

Any factor that decreases the cost of production increases supply

COSTS INCREASE; PROFITS DECREASE

Government regulations increase cost Natural disasters increase cost Expectations about future prices increase

cost (put in inventory) Increased taxes increase cost Costs of inputs increase

COSTS DECREASE; PROFITS INCREASE

Technological advances Number of firms increase Subsidies Future price decrease Taxes decrease Cost of inputs decrease