How Markets Work A Change in Supply

When any other factor affecting supply of a good other than its price changes, there is a change in supply curve it would shift to the right or to the left. We are going to study these factors and their effects on the supply curve.

A Change in Supply The Prices of Factors of Production : If the prices of factors of production rise, supply decreases.The prices of factors of production are costs of production, if they increase this means higher costs and lower profits so producers decrease production at each price and supply curve shifts to the left.

A Change in Supply Prices of Related Goods Produced: If price of a substitute rises, firms switch production from the good to the substitute and supply decreases,and vice versa. ( example: Energy bar & energy gel). If a price of a complement rises, the supply of the good increases and vice versa. Example : Beef and cowhide are complements in production ; they must be produced together.

A Change in Supply Expected Future Price: If the price of the good is expected to rise, supply decreases today and increases in the future. The Number of Suppliers: The larger the number of suppliers, the greater is the supply of the good. As firms enter an industry, the supply increases.

A Change in Supply Technology: It means the way that factors of production are used to produce a good. If technology improves and we use new method that lowers costs of production, production of the good increases and supply shifts to the right.

A Change in Supply The State of Nature : This includes all natural forces that influence production. Good weather can increase the supply of agricultural goods and vice versa. Extreme natural event such as earthquakes, tornados, and hurricanes can influence supply.

A Change in Quantity Supplied VS. a Change in Supply A change in quantity supplied means movement along the curve and it happens when the price of the good changes. a change in supply means that the entire supply curve shifts, it happens when any of the other factors that influence supply other than the price of the good changes

A Change in Quantity Supplied VS. a Change in Supply S 2 S P S 1 Q d q1q2 P1 P2 q3 q4

Table 3.2 p. 67 The Law of Supply supplied good The quantity of the Decreases if: The price of the good falls. Increases if: The price of the good rises.

Changes in Supply The supply of the good Decreases if : 1.The price o a factor of production used to produce it rises. 2.The price of a substitute in production rises. 3.The price of a complement in production falls. 4.The price of the good is expected to rise. Increases if : 1. The price o a factor of production used to produce it falls. 2.The price of a substitute in production falls. 3.The price of a complement in production rises. 4.The price of the good is expected to fall.

Changes in Supply The supply of the good Decreases if : 5.The number of suppliers decreases. 6.A technology change decreases production of the good. 7. A natural event decreases production of the good. Increases if : 5.The number of suppliers increases. 6.A technology change increases production of the good. 7. A natural event increases production of the good