1 Essential Question: Identify the two ways that producers can increase profit, List and briefly describe the 6 non-price determinants of supply, and evaluate whether a tax or a subsidy is more preferable to a producer and explain why Changes in Supply SECTION 2

2 The role of Profit Profit is the key motivator behind increase and decrease in profit. There are two key ways to increase profit Profit can be increased by generating higher revenues Selling greater quantity of products Selling products for higher prices Profit can be increased by lowering costs of production Changes in Supply SECTION 2

3 Determinants of supply: We will be doing a collaborative group effort for this segment of the notes In your groups, record the book supplied definition of your groups assigned D.O.S. Using information from the book, explain whether your DOS TYPICALLY causes supply to increase, decrease, or both and provide an example of each. Changes in Supply SECTION 2

4 Determinants of supply: Resource prices- When the materials required to produce change in price, it can raise or lower production costs which can effect the profit per unit. If costs decrease, producers make more profit and produce more. If costs increase, producers may make less product as they have to raise prices to make the same amount of profit Changes in Supply SECTION 2

5 Determinants of supply: Technology- Developing new technology can lead to increase production efficiency and lower production costs per item. Changes in Supply SECTION 2

6 Determinants of supply: Competition- when more producers enter/leave the market, an increase/decrease in the available supply of the product can occur. Changes in Supply SECTION 2

7 Determinants of supply: Prices of related goods- if producers have reason to think that there will be a shift in demand for a related good causing an increase/decrease at each and every price, they may increase/decrease supply. Ex: if the price of hot dogs decreases, ketchup makers will make more ketchup since they expect demand to increase. Changes in Supply SECTION 2

8 Determinants of supply: Producer expectations- Sometimes producers have reasons to believe that their will be higher/lower costs in the future or higher/lower demand in the future and they adjust their supply levels accordingly Changes in Supply SECTION 2

9 Determinants of supply: Government Tools- Often the government can have an impact on producers costs Tax- since this is a cost that producers have to pay, increases/decreases are closely monitored Subsidy- Either a reduction in tax or an actual money payment to a business. Regulation- A law that could force a company to change the way it does business resulting in higher/lower costs. Changes in Supply SECTION 2