Supply AS credits

Quiz Define Market Supply Define Market Supply State the calculation for Market Supply State the calculation for Market Supply Describe an indirect tax Describe an indirect tax Describe a subsidy Describe a subsidy Define Productivity Define Productivity

Answers Total of all individual supply at each and every price Total of all individual supply at each and every price Horizontal addition of individual quantity supply at each and every price Horizontal addition of individual quantity supply at each and every price A tax paid by a third party to the govt. Usually on the sale of goods and services A tax paid by a third party to the govt. Usually on the sale of goods and services A payment to producers from the government to increase the production of good considered to be a merit to society (good for society) A payment to producers from the government to increase the production of good considered to be a merit to society (good for society) An increase in output per unit of input An increase in output per unit of input

Supply Supply = the quantity of a good or service a producer is willing and able to buy at each and every price Supply Schedule = a table showing combinations of price and quantity Supplied Supply Schedule for pies Supplied in a week Price ($)Quantity Supplied (no. of pies)

Supply Curve = a graph plotting combinations of price and quantity Supplied D Title Label & Units on axes Even Scale Plot Points joined Curve labelled

Change in Quantity Supplied Change in quantity Supplied = when price changes there is a movement along the Supply curve from one quantity to another. D When Price decreases, quantity Supplied decreases (or When Price increases, quantity Supplied increases ) Law of Supply

Change in Supply A Supply curve is drawn assuming “ceteris paribus”. Ceteris Paribus = “all determinants affecting Supply are held constant except price.” If any determinant apart from price changes, we must shift (move) the Supply curve. This is called a change in Supply.

Increase in Supply Decrease in Supply Increase = shift rightDecrease = shift left Demand and Supply curves have the same rule: Increase = shift right Decrease = shift left

Determinants of Supply So what are the factors that will cause the entire Supply curve to shift? Costs of Production Costs of Production Changes in Productivity Changes in Productivity Technology Technology Price of other goods Price of other goods Environmental factors Environmental factors Legal factors Legal factors Trade factors Trade factors Cultural influences Cultural influences Political factors Political factors

Costs of Production Costs of Production –Eg. Wages, raw materials, electricity, petrol, –If costs of production increase, supply decreases. Increased Productivity (increases supply) Increased Productivity (increases supply) –The amount of output per unit of input –Eg. Productivity increases from 10 boxes per hour to 13 boxes per hour. –Productivity can result from labour (workers) working more effectively or from new capital (machines and equipment)

Technolgy Technolgy –Eg. Firm invests in new computer system. –New technology increases supply because it increases a firms productivity. Changes in Other (related) Goods Changes in Other (related) Goods –If the price of a related good changes it can affect the firms willingness to supply. –Eg. Price of beef falls. Farmers may switch from supplying beef to supplying more lamb.

Environmental factors Environmental factors –Being more “environmentally friendly” increases costs of production Legal Factors Legal Factors –Changes to laws can affect firms ability to supply. Costs of production increase as firms have to comply (follow) new laws. The Health and Safety Act The Health and Safety Act Labelling and packaging requirements Labelling and packaging requirements Zoning laws – where you can build Zoning laws – where you can build Noise laws Noise laws Anti Pollution laws Anti Pollution laws

Trade Factors Trade Factors –Firms are affected by: –Tariffs = tax on imported goods –Subsidy = payment to local producers –Quota = limit on quantity allowed Cultural Factors Cultural Factors –Being “Culturally Sensitive” can increase costs of production Eg. Paying for iwi consultation Eg. Paying for iwi consultation Eg. Avoiding building on sacred ground Eg. Avoiding building on sacred ground

Political Factors Political Factors –Taxes on “demerit goods” – alcohol & cigarettes –Subsidies for “merit gods” eg. Cycle helmets –Company tax –Overall economic policy – eg. Interest rates

Market Supply A market is made up of more than one producer A market is made up of more than one producer Market Supply = the sum of individual supply at each and every price Market Supply = the sum of individual supply at each and every price It is calculated by horizontally adding individual supply curves at each and every price. It is calculated by horizontally adding individual supply curves at each and every price.

Price $ per box Sarah’s Quantity Supplied Sam’s Sarnia’s Market Quantity Supplied

Impacts of Supply Decisions For excellence you need to be able to analyse the impact of supply decisions (keep your producer hat firmly on!!) For excellence you need to be able to analyse the impact of supply decisions (keep your producer hat firmly on!!) Eg. Govt decides to allow Easter trading: Eg. Govt decides to allow Easter trading: –Increased sales = more profits But maybe it just means less sales after Easter? But maybe it just means less sales after Easter? –Increased staffing required –May have to pay overtime rates –Increased cost of advertising –Increased costs for electricity etc.

Impacts of Supply Decisions Eg. Pam sells heaters and govt. has just increased safety standards required: Eg. Pam sells heaters and govt. has just increased safety standards required: –May have to re-train staff –May choose to switch to producing a related good May result in increased costs and maybe increased profits May result in increased costs and maybe increased profits –May have to change production methods Costs of production increase Costs of production increase May introduce technology May introduce technology –Costs increase but may increase productivity

Impacts of Supply Decisions Eg. Krystle’s clerical service: Govt subsidises firms who recycle paper: Eg. Krystle’s clerical service: Govt subsidises firms who recycle paper: Eg. Hey Mi’s Record Store: Govt reduces the tariff on imported DVD’s but keeps the tariff on imported CD’s Eg. Hey Mi’s Record Store: Govt reduces the tariff on imported DVD’s but keeps the tariff on imported CD’s Eg. Moniques hat shop: Monique decides to import expensive hats from Milan Eg. Moniques hat shop: Monique decides to import expensive hats from Milan For each example, analyse the effects on supply. Use economic terms like profit, costs, revenue, related goods etc. and …. Keep your producer hat on!!

Impacts of Supply Decisions Eg. Hey Mi’s Record Store: Govt reduces the tariff on imported DVD’s but keeps the tariff on imported CD’s Eg. Hey Mi’s Record Store: Govt reduces the tariff on imported DVD’s but keeps the tariff on imported CD’s Consider the impact on: –Government –Consumers –DVD player shops eg. Noel Leemings –Jessica’s Records who only sell CD’s –Movie theatres As well as Producers, other groups are affected by supply decisions: