Chapter 5 Section 3 What factors affect supply? Economics Chapter 5 Section 3 What factors affect supply?

Changes in Quantity Supplied Changes Along a Supply Curve Change in quantity supplied does not shift the supply curve movement to right means increase in price and quantity supplied movement to left means decrease in price and quantity supplied Market supply curves show larger changes than individual curves

Changes in quantity supplied do not shift the position of the supply curve. Why?

Changes in Supply Change in supply—producers offer different amounts at every price As production costs rise, supply drops; as costs drop, supply rises Change in supply shifts the supply curve Six factors cause change in supply

Changes in Supply Factor 1: Input Costs Input costs—price of resources needed to produce good or service if price of resource increases, costs increase if price of resource decreases, costs decrease

Changes in Supply Factor 2: Labor Productivity Labor productivity—amount of product worker can produce in set time Rise in productivity lowers production costs; supply increases Specialization can allow producer to make more goods at lower cost Better-trained workers produce more in less time; decrease costs

Changes in Supply Factor 3: Technology Technology—use of scientific methods, discoveries in production results in new products or manufacturing techniques Manufacturers use technology to make goods more efficiently Technology enables workers to be more productive

Changes in Supply Factor 4: Government Action Excise tax—tax on production or sale of specific good or service often placed on items that government wants to discourage use of taxes increase producers’ costs; decrease supply Regulation—set of rules, laws designed to control business behavior examples: banning use of certain resources, worker safety laws

Changes in Supply Factor 5: Producer Expectations Producers have expectations about future price of their product expectations affect how much they will supply at present Expectations of higher price in future may lead to different actions Farmer may withhold part of current crop and decrease supply Manufacturer may buy more equipment to increase future supply

Changes in Supply Factor 6: Number of Producers When one producer has successful new idea, others enter the market supply of good or service increases Increase in number of producers leads to increased competition may drive less-efficient producers out of market

Questions Complete the chart below. Factor That Changes Supply Reason Why Supply Changes

Questions How do each of these examples of government actions affect the supply of gasoline? a. In 2005, the government continued support for ethanol, a gasoline substitute. b. The state of California requires a special blend of gasoline that meets stricter environmental standards than other regions in the country. c. Many state use gasoline taxes to help fund highway construction and maintenance.

Questions Why do you think governments want to influence the supply of alcohol and tobacco products by imposing excise taxes?

Questions Complete the chart below for a manufacturer of MP3 players. Example Change That Affects Supply Factor and How It Affected Supply You give each worker in your factory a specialized job Price of computer chips used in MP3 players rises New machinery speeds up the manufacturing process Your success prompts three new companies to start producing MP3 players A new law requires producers to recycle the wastewater from their factories.