5.3 Change in Supply
What would a decrease in the cost of resources do to the supply curve?
A fall in the cost of input will cause an increase in supply at all price levels. An increase in supply is shown by a shift to the right of the supply curve.
Is a shift of the supply curve also caused by a change in the price of the good?
A shift in the supply curve (for example from A to C) is caused by a factor other than the price of the good and results in a different quantity supplied at each price. From A to B = change because of the price changes. From A to C = change caused by other factors and price is the same.
Similar to the demand curve, a movement along the supply curve from point A to point B is called a change in the quantity supplied. What causes these movements along the curve?
Changes along the supply curve are caused by a change in the price of the good. As the price of pizza increases, restaurants are willing to supply more pizzas.
What factors may affect the supply and shift its curve?
Changes in the costs of inputs, like raw materials, machinery, or labor, as well as government actions, can raise or lower the supply of a good at all prices.
What happens to the supply if producers expect future prices to increase?
If sellers expect the price of a good to rise in the future, they will store goods now and sell more in the future so as to make more profit then. Who suffers this?
What occurs to the supply when producers expect the prices to decrease in a near future?
If the price of the good is expected to drop, sellers will put more goods on the market immediately so as to make the maximum profit possible at the current (higher) price.
What effect does inflation often have on producers and the supply of goods?
In periods of inflation or rising prices, producers often try to hold on to goods, reducing supply.
The government has the power to affect the supply of many goods through regulations. An excise tax is a good example. What is an excise tax?
It is a tax on the production or sale of a good, making it more expensive to produce. Especially, if the good is considered harmful to the public. This way, the government can also reduce the supply of some goods, thus making their supply curve to shift to the left.
Why would a subsidy make the supply to shift to the right?
Since the subsidy lowers producers' costs, its effect is usually to increase supply.
How does technology affect supply?
Technological advances that improve production efficiency will shift a supply curve to the right. Thanks to technology, the cost of production goes down, and consumers will demand more of the product at lower prices. Better tech = more supply
What is a subsidy?
The government provided financial help to encourage production in a certain area. Subsidies help reduce the costs of production.
Why does an increase in the cost of resources cause a fall in supply at all prices?
because the product has become more expensive to produce. If for example, the price of crude oil (a resource or input into gasoline production) increases, the quantity supplied of gasoline at each price would decline, shifting the supply curve to the left.