5.2 Shifts of the Supply Curve CONTEMPORARY ECONOMICS 5.2 Shifts of the Supply Curve Objectives Identify the determinants of supply, and explain how a change in each will affect the supply curve. Contrast a movement along the supply curve with a shift of the supply curve. LESSON 5.2

5.2 Shifts of the Supply Curve Key Terms movement along a supply curve shift of a supply curve

Determinants of Supply 5.2 Shifts of the Supply Curve Determinants of Supply Five determinants of market supply (other than the price of the good) Cost of resources used to make the good Price of other goods these resources could make Technology used to make the good Producer expectations Number of sellers in the market

Changes in the Price of Resources 5.2 Shifts of the Supply Curve Changes in the Price of Resources Any change in the costs of resources used to make a good will affect the supply of the good. An increase in supply means that producers are more willing and able to supply more goods at each price. An increase in the price of a resource will reduce supply, meaning a leftward shift of the supply curve.

Changes in the Prices of Other Goods 5.2 Shifts of the Supply Curve Changes in the Prices of Other Goods A change in the price of another good certain resources could make affects the opportunity cost of making a particular good.

5.2 Shifts of the Supply Curve Changes in Technology Discoveries in chemistry, biology, electronics, and many other fields have created new products, improved existing products, and lowered the cost of production.

Changes in Producer Expectations 5.2 Shifts of the Supply Curve Changes in Producer Expectations Any change that affects producer expectations about profitability can affect market supply. An expectation of higher prices in the future could either increase or decrease current supply, depending on the good.

Changes in the Number of Suppliers 5.2 Shifts of the Supply Curve Changes in the Number of Suppliers Government regulations may influence market supply. Any government action that affects a market’s profitability, such as a change in business taxes, could shift the supply curve.

An Increase in the Supply of Pizza 5.2 Shifts of the Supply Curve An Increase in the Supply of Pizza 12 16 20 24 28 Millions of pizzas per week $15 9 6 3 Price per pizza S S' g h Figure 5.5

An Decrease in the Supply of Pizza 5.2 Shifts of the Supply Curve An Decrease in the Supply of Pizza 12 16 20 24 28 Millions of pizzas per week $15 9 6 3 Price per pizza S'' S g i Figure 5.6

Movements Along a Supply Curve Versus Shifts of a Supply Curve 5.2 Shifts of the Supply Curve Movements Along a Supply Curve Versus Shifts of a Supply Curve A change in price, other things constant, causes a movement along a supply curve from one price-quantity combination to another. A change in one of the determinants of supply other than the price causes a shift of a supply curve, changing supply.