Supply Shifts

1. Supply Shifts Mr. Barnett AP Economics University High

2. Determinants of Supply • Changes that raise/reduces the quantity supplied at every price • Input Prices • Technology • Expectations • Physical Availability of Resources • Number of Sellers • An increase in supply is represented by a shift to the right for supply – equilibrium price will decrease, quantity will increase • A decrease in supply is represented by a shift to the left for supply – equilibrium price will increase, quantity will decrease

3. Determinants of Supply • Input Prices • Sellers use various inputs (factors of production) • When the price of one or more input rises, producing the good or service becomes less profitable • Firms supply less of the good • May even shut down production if input prices rise too high • What costs might rise in our lemonade example?

4. Determinants of Supply • Technology • A technological improvement can reduce the cost of production – raising profit and supply • Supply increases and price will decrease

5. Determinants of Supply • Future Expectations • Future expectations affect suppliers too • If you think the price of your good will be higher in the future you might store some of your product for the future • This decreases supply, raising prices and decreasing quantity • If you think the future price will be lower, you will sell more of your product now • Increases supply, decreases prices and increases quantity

6. Determinants of Supply • Physical Availability of Resouces • If more resources are found or become available, the supply will increase • This will cause the price to decrease and quantity to increase • If resources become unobtainable, the supply will decrease • This will cause the price to increase, and quantity to decrease

7. Determinants of Supply • Number of Suppliers • Suppliers will enter or exit a market because of numerous reasons • An increase in suppliers will increase the supply of the good or service • A decrease in suppliers will decrease supply