Changes in Supply In this lesson, students will identify factors that affect supply. Students will be able to define and/or identify the following terms: Subsidy Excise Tax Regulation E. Napp

The cost of cheese affects the supply of pizzas. E. Napp

Change in the Cost of Inputs Any change in the cost of an input will affect supply. An example of an input is a raw material. A rise in the cost of an input will affect supply at all price levels because the good has become more expensive to produce. Conversely, a fall in the cost of an input will cause an increase in supply at all price levels. E. Napp

Government policies can also affect supply. E. Napp

A Subsidy A subsidy is a government payment that supports a business or a market. Subsidies increase supply because subsidies increase supplier’s profits. Typically, the government provides subsidies to farmers. A farmer profits from the subsidy as well as the sale. E. Napp

Farmers receive government subsidies because farm products are cheap. Farmers would go out of business without subsidies. E. Napp

Excise Tax An excise tax is a government tax on the production or sale of a good. The government places excise taxes on harmful or dangerous products. The excise tax on cigarettes reduces supply. E. Napp

The government places an excise tax on cigarettes to discourage consumption of this harmful product. E. Napp

Regulation Regulation is a government intervention in the market that affects the price, quantity, and quality of a good. An example of regulation is requiring car manufacturers to install pollution reducing devices on cars. Regulation can reduce supply. E. Napp

Government regulations require car manufacturers to install pollution reducing devices. E. Napp

Shifts in Supply Curves If the supply curve shifts left, fewer goods will be supplied at all price levels. If a supply curve shifts right, more goods will be supplied at all price levels. Excise taxes shift a supply curve to the left while subsidies shift a supply curve to the right. E. Napp

Excise taxes affect supply. E. Napp

When a supply curve shifts to the left, supply is reduced at all price levels. E. Napp

When the supply curve shifts to the right, supply is increased at all price levels. E. Napp

Questions for Reflection: Why does the government place excise taxes on products and how do excise taxes affect supply? Why does the government provide subsidies to some industries and how do subsidies affect supply? How does regulation affect supply? Why does a rise in the cost of an input affect supply? E. Napp