Changes in Supply! (Supply Shifters)

What is a change in supply? Any change that alters the quantity supplied at every price. A shift in the supply curve, either to the left or right. 19

Shifts in the Supply Curve Price of S2 Ice-Cream S Cone S 1 Decrease in supply Increase in supply Quantity of Ice-Cream Cones

Supply Shifters: T- I- G- E- R- S- Technology International Events/Disasters Government Intervention Expectations for Future Price Changes Resource Costs Number of Sellers in the Market I- G- E- R- S-

Technological Advancements As technology advances, production becomes more efficient and supply increases (shifts to the right). P Q S S1

International Events/Disasters When international events (such as wars & revolutions) or natural disasters occur, supply decreases (shifts to the left). P Q S1 S

Government Intervention (Taxes, Fees, Regulations, Subsidies) When a tax, fee, or regulation is imposed on the production of a good or service, supply decreases (shifts to the left). When a subsidy is granted for producers of a good or service, supply increases (shifts to the right). P Q S1 S P Q S S1

Example: If the import tax on Toyota Corollas increases, the profit per unit decreases, and American manufacturers will not be able to afford to offer as many for sale. P Q S1 S

Example: When the government decided to subsidize dairy farming, dairy farmers’ profits increased, therefore increasing supply of dairy cattle. P Q S S1

Expectations of Future Price Changes If producers expect the price of a good to rise in the future, immediate supply decreases (shifts to the left). If producers expect the price of a good to decrease in the future, immediate supply increases (shifts to the right). P Q S1 S P Q S S1

Example: If Farmer Joe hears that the price of corn is going to increase next month, he’s going to wait to sell his corn (therefore decreasing the immediate supply of corn).

Resource Costs As the factors of production (land, labor, and capital) become more expensive for the producer to purchase, supply decreases (shifts to the left). As the factors of production (land, labor, and capital) become less expensive for the producer to purchase, supply increases (shifts to the right). P Q S1 S P Q S S1

Example: Don’s landlord increases his rent, which increases Don’s costs of production. Since it’s more expensive to make a donut, the profit per unit earned decreases and supply of Don’s Donuts falls.

Number of Sellers in the Market When additional firms (businesses) enter a market, supply of the product increases (shifts to the right). When firms (businesses) exit a market (go out of business or for some other reason cease production), supply of the product decreases (shifts to the left). P Q S S1 P Q S1 S

Example: If the Bartow City Council passed a law banning pizza from being sold within city limits, pizza producers would have to close/move, decreasing the supply of pizza in Bartow.

Variables That Influence Sellers

Shifts in Supply Due to recent high fuel prices, United Airlines has reduced the number of flights to the Caribbean for the upcoming spring break. Supply Shift: Left

Shifts in Supply A water bottle company hears a forecast for a hurricane in the Polk county area early next week. Supply Shift: Right

Shifts in Supply The state of Florida announces higher taxes on gasoline to cover road repairs. Supply Shift: Left

“Analyzing Supply Headlines” Activity Instructions May work with your partner. In this activity, you will work with your partner to analyze a series of newspaper headlines. Based on information in each headline, you will investigate what happens to the demand curve for a related product.

Work with your group to analyze headlines that will likely affect supply by following these steps: Carefully read one of the demand headlines. Determine whether the information will Shift the entire curve to the left or to the right, or Not shift the supply curve, but change the quantity supply along the original curve.

Summarize the headline in the corresponding row. On your worksheet… Summarize the headline in the corresponding row. Draw what will likely happen to the supply curve. Explain what happened to the supply curve & why. Cite & underline the shifter (TIGERS), or explain why the curve did not shift, and whether quantity supplied increased or decreased. Wages Decline for U.S. Workers -Demand decreased (shifted left) -Income of consumers decreased D2

Summarize the headline in the corresponding row. Have your work checked by the teacher. Then repeat the process with a new headline until I-P are completed. Summarize the headline in the corresponding row. Draw what will likely happen to the demand curve. Explain what happened to the supply curve & why.

Elasticity OF SUPPLY

WHAT WILL PRODUCERS DO WHEN PRICES CHANGE WHAT WILL PRODUCERS DO WHEN PRICES CHANGE??? How much less will producers make if the price falls? How much more will producers make if the price rises?

ELASTICITY OF SUPPLY: Measurement of producers’ sensitivity to price. Producers are responsive to price changes. INELASTIC: Producers are not responsive to price changes.

Determinants of Supply Elasticity: Availability of inputs Mobility of inputs Storage capacity Time needed to adjust to a price change

Elastic or Inelastic? Bananas Yogurt Antiques Medical Care

Putting it all together: EQUILIBRIUM How Demand & Supply Interact to Determine Prices of Goods & Services

SUPPLY AND DEMAND TOGETHER Equilibrium Qs= Qd Law of Supply and Demand: The price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance. 36

SUPPLY AND DEMAND TOGETHER Demand Schedule Supply Schedule At $2.00, the quantity demanded is equal to the quantity supplied! 36

The Equilibrium of Supply and Demand Price of Ice-Cream Cone Supply Demand Equilibrium Equilibrium price $2.00 Equilibrium quantity 1 2 3 4 5 6 7 8 9 10 11 12 13 Quantity of Ice-Cream Cones

What happens when demand or supply shifts?

If Demand Increases… P Q P2 D2 Q2

If Demand Decreases… P Q P2 D2 Q2

If Supply Increases… S2 P Q P2 Q2

If Supply Decreases… S2 P Q P2 Q2

Four Steps to Analyzing Changes in Equilibrium Does the event shift the supply (TIGERS) or demand curve (TIRES)? Will the curve shift right ( ) or left ( )? Draw & label the new curve on your graph Locate the new equilibrium (price and quanity) 45

Airline Tickets 600 500 400 300 200 100 Price $ QD QS 200 24 1 300 16 10 400 500 4 22 600 25 Airline Tickets 600 500 400 300 200 100 S Price $ 350 D 0 2 4 6 8 10 12 14 16 18 22 24 26 28 13 Quantity #

Let’s Practice… 45

Nation’s largest spaghetti producer cuts pasta prices Spaghetti Sauce P Q P2 D2 Q2

Subzero temperatures destroy much of Florida’s citrus crop Orange Juice S2 P Q P2 Q2

Farmer invents new picking machine – Harvests apples in half the time Red Delicious Apples S2 P Q P2 Q2

Colorado ski resorts announce 50% increase in lift ticket prices Hotel Rooms @ Colorado Ski Resorts P Q P2 D2 Q2

Price Controls

Why would the government step in to control the prices of goods and services? Would economists think that controlling prices is good idea?

PRICE CEILING: (Creates a Shortage) A MAXIMUM price set by the government that consumers are required to pay for a good or service. Prevents prices from getting too high, enabling consumers to buy essential goods or services they wouldn’t be able to afford at the equilibrium price Example: Rent control

PRICE CEILING Price Ceiling Qs Qd SHORTAGE

If the price is too low (Qd > Qs)… Price of Ice-Cream The Price Will Rise! Cone Supply Demand $2.00 $1.00 Quantity Quantity Demanded Supplied 1 2 3 4 5 6 7 8 9 10 11 12 13 SHORTAGE Quantity of Ice-Cream Cones

PRICE FLOOR: (Creates a Surplus) A MINIMUM price set by the government that consumers are required to pay for a good or service. Pushes price up, ensuring that producers receive a benefit for providing a good or service Example: Minimum wage

PRICE FLOOR Price Floor Qd Qs Surplus

If the price is too high (Qs > Qd)… Price of Ice-Cream The Price Will Drop! Cone Supply Demand $3.00 $2.00 Quantity Quantity Supplied Demanded 1 2 3 4 5 6 7 8 9 10 11 12 13 Surplus Quantity of Ice-Cream Cones

Shortage and Surplus of Apples Indicate whether there is a shortage (quantity demanded > quantity supplied) or a surplus (quantity supplied > quantity demanded). Indicate the amount of the shortage or surplus. Price per bushel Quantity demanded (D) Quantity Supplied (S) Surplus or Shortage Amount $40 20 60 $32 30 50 $24 40 $16 $8 Surplus 40 Surplus 20 Equilibrium Shortage 20 Shortage 40