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Published byWilfrid Hoover Modified over 9 years ago
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Law of Supply How Much Do We Make?
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Quantity Supplied S
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S2
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Quantity Supplied S3
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If the price of an input INCREASES, Supply of that good will DECREASE (shift to the left) If the price of an input DECREASES, Supply of that good will INCREASE (shift to the right) If the price of Labor INCREASES, Supply of that good will DECREASE (shift to the left) If the price of Labor DECREASES, Supply of that good will INCREASE (shift to the right)
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If the price of a good is expected to INCREASE, the Supply of that good in the short term will DECREASE (shift to the left) If the price of a good is expected to DECREASE, the Supply of that good in the short term will INCREASE (shift to the right) If government regulation on a good INCREASES, the Supply of that good will DECREASE (shift to the left) If government regulation on a good DECREASES, the Supply of that good will INCREASE (shift to the right)
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As new technology is applied to production, Supply of that good will INCREASE (shift to the right) As the number of sellers INCREASES, Supply of that good will INCREASE (shift to the right) As the number of sellers DECREASES, Supply of that good will DECREASE (shift to the left)
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Changes in Supply Supply Shock A sudden decrease in production as a result of conflict, a natural disaster or accident. Supply DECREASES
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INCREASES Shifts right due to change in cost of inputs
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INCREASES Shifts right due to change in technology
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DECREASES Shifts left due to change in cost of inputs
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INCREASES Shifts right due to change in number of suppliers (regulation)
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DECREASES Shifts left due to change in number of suppliers
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NO CHANGE Shifts along curve due to Law of Supply
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DECREASES Shifts left due to change in cost of inputs
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K = CapitalL = Labor
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I: Increasing Returns II: Diminishing Returns III: Decreasing Returns Each increase in an input leads to proportionately more increase in output Each increase in an input leads to proportionately less increase in output Each increase in an input leads to a decline in output
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Law of Diminishing Returns In the presence of fixed inputs, additional units of a variable input will produce increasingly smaller increases in output Thus: If Labor is fixed, increasing amounts of capital will result in diminishing increases in output
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60 cents 50 cents 53 cents (Most Productive)
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PRODUCTION Businesses produce and sell goods so they can make profits Profit = Π Π = Revenues - Costs
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PRICE
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