Chapter 5 Section 3 What factors affect supply?

1. 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.

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.