1. Shifts in Supply
Unit 2

2. Supply Graph
Price
Quantity S

3. Change in Quantity Supplied
Changes in price cause a change in quantity suppled
Illustrated by moving from one point to another on the supply curve

4. Changes in Supply
INCREASE in Supply: Businesses are willing and able to sell MORE of a good AT EVERY PRICE LEVEL
DECREASE in Supply: Businesses are willing and able to sell LESS of a good AT EVERY PRICE LEVEL
Illustrated by shifting the entire supply curve

5. INCREASE in supply shifts the supply curve to the RIGHT
Price
Quantity S1 S2
INCREASE in supply shifts the supply curve to the RIGHT

6. DECREASE in supply shifts the supply curve to the LEFT
Price
Quantity S1
DECREASE in supply shifts the supply curve to the LEFT

7. Why Supply Shifts: Determinants of Supply
Technology/Productivity
Cost of Inputs/Factors of Production
Number of Sellers
Producer Expectations
Government
Price of Related Goods
Weather/Natural Disasters

8. Technology/Productivity
Improves production of G&S
Makes G&S more cheaply
Leads to more productivity and efficiency

9. Cost of Inputs/ Factors of Production
If cost of a factor of production increases, supply will decrease.
More expensive to produce good
If cost of a factor of production decreases, supply will increase.
Less expensive to produce good

10. Producer Expectations
If producers expect they can sell a good for a higher price in the near future, supply will decrease now.
If producers expect the price to go down in the near future, supply will increase now.

11. If your company produces mp3 players and you hear that Apple will soon introduce a new iPod that has more memory and longer battery life, you (and other producers) may decide to hurry up and sell your players to stores before the new iPod comes out. When people decide to increase production/sales today, they are increasing the current supply for mp3 players because of what they EXPECT to happen in the future.

12. Government: Regulations or Taxes
Increase in government regulations or taxes on businesses decreases supply.
Decrease in government regulations or taxes on businesses increases supply.

13. Government: Subsidies
Increase in government subsidies for businesses increases supply.
Decrease in government subsidies for businesses decreases supply.

14. Price of Related Goods
If businesses can sell other G&S for a higher price, they will shift production away from their product to the G&S they can sell at a higher price.
Supply for original good decreases.
Supply for new good increases.

15. Weather/Natural Disasters
Natural disasters or bad weather will decrease supply
Good weather could increase supply of agricultural products