Applying the Principles Chapter 5, Section 2
Section 2 ∗ If supply increases, the supply curve shifts RIGHT (right or left), meaning that sellers want to sell MORE (more or less) of a good at each and every price. ∗ If supply decreases, the supply curve shifts LEFT (right or left), meaning that sellers want to sell LESS (more or less) of a good at each and every price.
Resource Prices ∗ If resources prices fall, supply RISES and the supply curve shifts to the RIGHT. ∗ If resources prices rise, supply FALLS and the supply curve shifts to the LEFT.
Technology ∗ Advancements in technology reduce per-unit costs. Supply RISES and the supply curve shifts to the RIGHT.
Taxes ∗ Higher taxes make production more expensive so supply FALLS and the supply curve shifts to the LEFT. ∗ Lower taxes shift the supply curve to the RIGHT.
Subsidies ∗ Subsidies make production less expensive so supply RISES and the supply curve shifts to the RIGHT. ∗ If a subsidy is removed, the supply curve shifts to the LEFT.
Quotas ∗ Quotas DECREASE supply and shift the supply curve to the LEFT. ∗ If a quota is eliminated, the supply curve shifts to the RIGHT.
Number of Sellers ∗ If the number of sellers increases, supply RISES and the supply curve shifts to the RIGHT. ∗ If the number of sellers decrease, supply FALLS and the supply curve shifts to the LEFT.
Future Price ∗ If sellers expect the price of a good to rise in the future, they may withhold the good from the market and wait to get the higher price. In this case, supply FALLS and the supply curve shifts to the LEFT . ∗ If sellers expect the price of a good to fall in the future, they may supply more of the good now to get the higher price. In this case, supply RISES and the supply curve shifts to the RIGHT.
Weather ∗ Bad weather can reduce the supply of agricultural goods and the supply curve shifts to the LEFT. ∗ Good weather can increase the supply of agricultural goods and the supply curve shifts to the RIGHT.
∗ What will cause a change in the supply of a good? RESOURCE PRICES TECHNOLOGY TAXES SUBSIDIES QUOTAS WEATHER FUTURE PRICE NUMBER OF SELLERS ∗ What will cause a change in the quantity supplied of a good? A CHANGE IN THE PRICE
∗ How is a change in supply represented on a graph?
THE ENTIRE CURVE SHIFTS TO THE RIGHT OR LEFT ∗ How is a change in quantity supplied represented on a graph?
MOVEMENT ALONG THE CURVE
The U.S. government increases the subsidy for corn production. ∗ Will the supply of corn increase, decrease, or stay the same? INCREASE ∗ In which direction will the supply curve shift? RIGHT ∗ Which of the eight factors causes the shift? SUBSIDIES
A major drought destroys crops in America's heartland. ∗ Will the supply of corn increase, decrease, or stay the same? DECREASE ∗ In which direction will the supply curve shift? LEFT ∗ Which of the eight factors causes the shift? WEATHER
The price of fuel used in farm machinery increases to a new high. ∗ Will the supply of corn increase, decrease, or stay the same? DECREASE ∗ In which direction will the supply curve shift? LEFT ∗ Which of the eight factors causes the shift? RESOURCE PRICE
The U.S. government places a quota on all imported farm products. ∗ Will the supply of corn increase, decrease, or stay the same? DECREASE ∗ In which direction will the supply curve shift? LEFT ∗ Which of the eight factors causes the shift? QUOTA
A newly developed seed increases the corn yield. ∗ Will the supply of corn increase, decrease, or stay the same? INCREASE ∗ In which direction will the supply curve shift? RIGHT ∗ Which of the eight factors causes the shift? TECHNOLOGY
As property values rise, many farm fields are turned into housing developments and shopping malls. ∗ Will the supply of corn increase, decrease, or stay the same? DECREASE ∗ In which direction will the supply curve shift? LEFT ∗ Which of the eight factors causes the shift? NUMBER OF SELLERS
The U.S. government gives farmers a tax cut by allowing them to deduct most expenses. ∗ Will the supply of corn increase, decrease, or stay the same? INCREASE ∗ In which direction will the supply curve shift? RIGHT ∗ Which of the eight factors causes the shift? TAXES
Corn prices are expected to rise next month as more ethanol refineries start production. ∗ Will the supply of corn increase, decrease, or stay the same? DECREASE ∗ In which direction will the supply curve shift? LEFT ∗ Which of the eight factors causes the shift? FUTURE PRICE
Chocolate-covered corn on a stick becomes a new fad at state fairs. ∗ Will the supply of corn increase, decrease, or stay the same? STAY THE SAME ∗ In which direction will the supply curve shift? NO CHANGE IN THE CURVE ∗ Which of the eight factors causes the shift? THIS IS A DEMAND FACTOR, NOT SUPPLY
Elasticity of Supply ∗ When quantity supplied changes by a larger percentage than price, supply is ELASTIC. ∗ When quantity supplied changes by a smaller percentage than price, supply is INELASTIC. ∗ When quantity supplied changes by the same percentage as price, supply is UNIT-ELASTIC.
Elasticity ∗ UNIT-ELASTIC
∗ The price of textbooks increases by 20 percent, and the quantity supplied of textbooks rises 20 percent.
∗ INELASTIC
∗ The price of jeans increases by 5 percent, and the quantity supplied of jeans increases by 3 percent.
∗ ELASTIC
∗ The price of televisions increases by 15 percent, and the quantity supplied of televisions increases by 25 percent.
Price
INELASTIC
S1 0
Quantity Supplied
Price
ELASTIC
S1
0
Quantity Supplied
The supply of some goods, such as houses, increases at a slow pace. Do you think the supply of houses is more elastic in the short run or in the long run? Explain. ∗ The supply of houses is more elastic in the long run. Quantity supplied cannot be increased quickly because it takes a long time to build a house.
Will the supply curve for most goods become more vertical or more horizontal as time passes? Explain. ∗ As time passes, the supply curve will become more horizontal (more elastic). The supply of many goods is inelastic in the short run because it takes time to produce them.
