NON – PRICE FACTORS AFFECTING SUPPLY

NON – PRICE FACTORS There are four factors other than price that the firm has some control over which can affect supply 1.Costs of production 2.Price of related goods 3.Productivity 4.Technology

1. COSTS OF PRODUCTION Production costs – are the costs inputs into the production process. E.g. Wages Raw materials Rent Interest Electricity Compliance costs ( e.g Safety costs, first aid etc) If production costs increase and selling price remains the same, then profit margins will decrease. The producer is willing and able to sell less at this price.

INCREASES IN COST OF PRODUCTION S1 S2 Q2Q1 P1 An increase in the cost of production causes a decrease in supply shown by a shift to the left of the supply curve. This is because the product becomes less profitable At the price of P1 the firm is willing and able to supply less than it previously did If there is a decrease in the production costs, then there is an increase in supply at each price and the supply curve shifts to the right because it becomes more profitable

WORK BOOKS PAGE 98 – 99 Then 100 Quest # 1, 3 Page 101 Quest 1 & 2

2. PRICE OF RELATED GOODS  A related good (or service) is one that can be produced using the same resources e.g. pancake or pikelet.  An increase in the price of a related good will cause a decrease in Supply of this good.

EXAMPLE – RELATED GOODS You supply cheese rolls and the price of toasties increase. Supply of Toasties Supply of Cheese rolls Price ($) Output (ea) S S P1 Q1 P1 P2 Q2 S1 Q2 An increase in the price of toasties will cause a decrease in the supply of cheese rolls as cheese rolls have become relatively less profitable. This is shown as a movement of the supply curve to the left. An increase in the price of toasties will cause an increase in the quantity supplied of toasties as toasties become relatively more profitable. Shown by a movement up the supply curve. Supply of toasties Supply of cheese rolls S S S1 Q1 Q2 P1 P2 Q1 Output (ea) Q2

An increase in the price of toasties will cause a decrease in the supply of cheese rolls as cheese rolls have become relatively less profitable. This is shown as a movement of the supply curve to the left. An increase in the price of toasties will cause an increase in the quantity supplied of toasties as toasties become relatively more profitable. Shown by a movement up the supply curve.

So if you could be a personal trainer or a team coach, and the price of personal trainers went up, you would offer more personal training services and less coaching services

Switching between Dairy production and Lamb production are decisions made based on the price of related goods

WORKBOOKS PAGE

3. PRODUCTIVITY

Increase in Technology Decrease in Productivity S S1 Q1 Q2 S Q1 S1 Q2 Price P1 Technology can increase productivity Price Quantity

EXERCISES PAGE

SUPPLY OR QUANTITY SUPPLIED? If there has been a change in PRICE then we say QUANTITY SUPPLIED has changed. There will be a movement ALONG the curve If there has not been a change in price then we say a change in SUPLLY. There will be a SHIFT of the curve C- Cost of production P- Price of related Goods P- Productivity T- Technology

SHOW AN INCREASE IN QUANTITY SUPPLIED S Q1 Price P1 Quantity P2 Q2

SHOW AN DECREASE IN SUPPLY S S1 Q1 Q2 P1 Price Quantity

SHOW A INCREASE IN SUPPLY S Q1 S1 Q2 Price P1 Quantity

SHOW A DECREASE IN QUANTITY SUPPLIED S Price Quantity Q2 P2 P1 Q1