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SUPPLYFactors that shift supply
TODAY’S AGENDA
Objective: To identify the factors that shift supply and which direction the curve shifts.
Essential Skill: To explicitly assess information and draw conclusions.
Change in quantity supplied (a movement along the curve)
CHANGE IN QUANTITY SUPPLIED
Pri
ce (
per
un
it)
Quantity supplied (per unit of time)
S0
$15A
1,250 1,500
B
SHIFT IN SUPPLY
Pri
ce (
per
un
it)
Quantity supplied (per unit of time)
S0
Shift in Supply(a shift of the curve)
S1
$15A B
1,250 1,500
NON-PRICE DETERMINANTS OF SUPPLY:FACTORS THAT SHIFT THE SUPPLY CURVE
“ROTTEN”
“R” IS FOR RESOURCE
Changes in resource prices or input costs
Elements of nature and political disruptions
“O” IS FOR OTHER
Change in Prices of other goods produced and offered for sale
“T” IS FOR TECHNOLOGY
Changes in technology
“T” IS FOR TAXES
Changes in taxes and subsidies
“E” IS FOR EXPECTATIONS
Change in expected future prices, (producer) expectations
“N” IS FOR NUMBER
Change in the number of suppliers in the market
Elements of nature and political disruptions
NON-PRICE DETERMINANTS OF SUPPLY
Changes in resource prices or input costs Elements of nature and political disruptions
Change in Prices of other goods produced and offered for sale
Changes in technology Changes in taxes and subsidies Change in Expected future prices (producer) expectations
Change in the number of suppliers in the market Elements of nature and political disruptions
QUICK TIP
Any factor that increases the cost of production decreases supply
Any factor that decreases the cost of production increases supply
COSTS INCREASE; PROFITS DECREASE
Government regulations increase cost Natural disasters increase cost Expectations about future prices increase
cost (put in inventory) Increased taxes increase cost Costs of inputs increase
COSTS DECREASE; PROFITS INCREASE
Technological advances Number of firms increase Subsidies Future price decrease Taxes decrease Cost of inputs decrease