1. Understanding Supply and Changes in Supply

2. Law of Supply
Producers will offer more of a good if prices rise, and less of a good if prices fall (in other words, the higher the price, the larger the quantity produced).
This is to try to make as large of a profit as possible
Competition is created among firms (businesses), and some are forced to drop out of the market

3. Market Supply Curve
A market supply curve illustrates the quantity supplied by all producers in a market at different prices
It always rises from left to right
This is because higher prices lead to higher output / production of goods

4. Example of a Supply Curve

5. Elasticity of Supply
Like the concept of elasticity of demand, elasticity of supply is a concept that shows how suppliers react to price changes.

6. Inelastic Supply
Industries that cannot easily change production have inelastic supply.
Example: Orange growers cannot increase production quickly when prices rise because they need to purchase more land and plant more trees in order to increase output

7. Elastic Supply
When a firm (business) / industry can easily alter production after a price change, it has elastic supply.
Example: A service industry like a barber shop has elastic supply. If the price of a haircut rises, barber shops and salons can hire new workers quickly, new barber shops will start, and existing businesses will stay open later.

8. Changes in Supply
Any change in the cost of inputs, like raw materials, machinery, or labor, will affect supply.
A decrease in production costs increases the supply of a good and an increase in production costs decreases the supply of a good because the good has become more expensive to produce

9. Changes in Supply
The government has the power to affect the supply of many goods.
A subsidy is a government payment to support a business or market
Since the subsidy lowers the cost of producing a good, its effect is to increase supply

10. Changes in Supply
The government can also reduce the supply of some goods by placing an excise tax on them.
An excise tax is a tax on the production or sale of a good, making it more expensive to produce
Regulation, or steps the government takes to control production, can also decrease the supply of a good

11. Changes in Supply
Another influence on supply is producers’ expectations
If producers expect the price of a good to drop in the future, they will put more goods on the market immediately (increase supply) to try to make as much profit as they can in the short-term before the price of the good falls

12. Changes in Supply
If sellers expect the price of a good to rise in the future, they will store more goods now and sell more in the future (decrease supply) in order to try to make as much profit as they can in the long-term (they make more profit when selling a good when the price is higher).

13. Changes in Supply
Technology and Competition in the market also affect supply
Improvements in technology will increase supply because production costs will be lowered, and more firms entering the market (more competition) will also increase supply as firms attempt to compete with each other for market control

14. Changes in Supply
Firms (businesses) leaving the market will decrease supply because there will be less competition. Companies not forced to leave the market know that, at least in the short-term, they do not have to produce more goods to compete with other companies.

15. Summary of Changes in Supply
Forces that Increase Supply:
Decreases in production costs
Increases in technology
Government subsidies
Expectations of lower prices
More firms entering the market

16. Summary of Changes in Supply
Forces that Decrease Supply:
Increases in production costs
Excise taxes
Government regulations
Expectations of future higher prices
Firms leaving the market