FACTORS THAT AFFECT SUPPLY

CHANGES IN QUANTITY SUPPLIED An increase or decrease in the amount of a good or service that producers are willing to sell because of a change in price. Changes in quantity supplied occur due to a change in price, assuming “all other things being equal.” (Just like in quantity demanded) Example: If you are a farmer selling tomatoes and the price of tomatoes has increased from $1 per to $3 per pound then the quantity demanded would increase. (You can make more money if you sell more tomatoes)

CHANGES IN QUANTITY SUPPLIED What does this look like? Change in quantity supplied moves along the supply curve. As you move up the supply curve the quantity supplied increases As you move down the supply curve the quantity supplied decreases

SHIFTS IN SUPPLY Occurs when a change in the marketplace prompts producers to sell different amounts at every price. When production costs increase supply decreases When production costs decrease supply increases Just like in demand, change in supply actually shifts the supply curve.

FACTORS THAT SHIFT SUPPLY Input costs The price of the resources needed to produce a good or service. You make nutrition bars that contain peanuts. If the price of peanuts increase. You can no longer afford to produce as many bars. Shifts supply curve to the LEFT.

FACTORS THAT SHIFT SUPPLY Labor Productivity The amount of goods or services that a person can produce in a given time Increasing productivity decreases the costs or production which will increase supply. A better trained and more skilled workers can produce more goods in less time. Shifts curve to the RIGHT

FACTORS THAT SHIFT SUPPLY Government Action Government Action can affect costs of production both positively and negatively. Negative – Excise tax: A tax on production or sale of a specific good or service. Tax on tobacco. The tax increases producers’ cost and then will decrease the supply of these items. Positive – Subsidies: purpose is to encourage the sale of an item by artificially reducing the cost. Corn Subsidies. Government pays corn producers to reduce costs and thus increasing demand.

FACTORS THAT SHIFT SUPPLY Technology Can result in new production methods which can allow you to make goods more efficiently Shifts to the RIGHT Producer Expectations If producers expect the price of their product to rise or fall in the future it will affect how much they are willing to produce. Example: If a manufacturer believes that the price of their product will rise, they may run the factory for an extra shift or invest in more equipment to increase supply.

FACTORS THAT SHIFT SUPPLY Number of Producers When a company develops a successful new idea other producers will enter the market and increase the supply of the good or service. Example: You are the only person at Partridge Creek selling ice cream cones. Then 3 months later, 4 other vendors start selling at the mall. Because there are more ice cream cones in the market, the supply has increased.