1. Chapter 5 Section 3 What factors affect supply?
Economics
Chapter 5 Section 3 What factors affect supply?

2. 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 supplied
Market supply curves show larger changes than individual curves

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

4. 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

5. Changes in Supply Factor 1: Input Costs
Input costs—price of resources needed to produce good or service
if price of resource increases, costs increase
if price of resource decreases, costs decrease

6. Changes in Supply Factor 2: Labor Productivity
Labor productivity—amount of product worker can produce in set time
Rise in productivity lowers production costs; supply increases
Specialization can allow producer to make more goods at lower cost
Better-trained workers produce more in less time; decrease costs

7. Changes in Supply Factor 3: Technology
Technology—use of scientific methods, discoveries in production
results in new products or manufacturing techniques
Manufacturers use technology to make goods more efficiently
Technology enables workers to be more productive

8. Changes in Supply Factor 4: Government Action
Excise 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

9. Changes in Supply Factor 5: Producer Expectations
Producers have expectations about future price of their product
expectations affect how much they will supply at present
Expectations 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

10. Changes in Supply Factor 6: Number of Producers
When 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

11. Questions Complete the chart below.
Factor That Changes Supply
Reason Why Supply Changes

12. Questions
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.

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

14. 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.