Economics
Determinants of Supply
Determinants of supply refer to the factors that influence the quantity of a good or service that producers are willing and able to offer for sale at various prices. These determinants include input prices, technology, expectations, number of sellers, and government policies. Changes in these determinants can lead to shifts in the supply curve, impacting the quantity supplied at each price level.
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9 Key excerpts on "Determinants of Supply"
eBook - PDF- Rhona C. Free(Author)
- 2010(Publication Date)
- SAGE Publications, Inc(Publisher)
A change in quantity supplied is illustrated by a move along the curve. In Figure 7.2, an increase in quantity supplied is illustrated by a move-ment from point F to G. It is important to note that the increase in the willingness to sell from Q 3 to Q 4 occurs because price has increased from P 2 to P A decrease in y quantity supplied is illustrated by a movement from point G to F. Determinants of Supply As we saw with demand, a number of factors influence a seller's willingness and ability to provide a good or service to the market. These factors are known as Determinants of Supply. Consider again the market for gasoline. What factors might influence a seller's willingness or ability to sell gasoline? 72 · MICROECONOMICS Figure 7.2 Change in Supply Versus Change in Quantity Supplied Factor Costs Factor costs refer to the amount of money paid for inputs in the production process. If factor costs increase, then supply will decrease, represented by a movement from S 2 to in Figure 7.2. For example, one of the factors of production used to produce gasoline is crude oil. If the cost of crude oil increases, this raises the cost of producing gasoline. As a result, the amount of gasoline available at every price will decrease. Consider for a moment that sup-pliers of gasoline are willing to sell Q 3 gasoline at a price of P 2 . If the cost of producing gasoline increases, due to an increase in the cost of crude oil, then sellers would expect a higher price, perhaps P, to be willing and able to sell the same quantity. Because price must rise for suppliers to keep the quantity supplied unchanged, supply must decrease if price remains unchanged. This scenario describes a decrease in supply and is illustrated by a shift from S 2 to 5, in Figure 7.2. If factor costs decrease, then supply will increase, represented by a movement from S, to S 2 in Figure 7.2. Technology The quantity and quality of technology available for use in the production process affects the supply.
eBook - PDF- Irvin B. Tucker, Irvin Tucker(Authors)
- 2016(Publication Date)
- Cengage Learning EMEA(Publisher)
As a result, a smaller quantity will be offered for sale at any price. Exhibit 9 summarizes the terminology for the effects of changes in price and non-price determinants on the supply curve. 3-6 NONPRICE Determinants of Supply Now we turn to how each of the six basic nonprice factors affects supply. 3-6a NUMBER OF SELLERS What happens when a severe drought destroys wheat or a frost ruins the orange crop? The damaging effect of the weather may force orange growers out of business, and supply decreases. When the government eases restrictions on hunting alligators, the number of alligator hunters increases, and the supply curve for alligator meat and skins increases. Internationally, the United States may decide to lower trade barriers Change in quantity supplied A movement between points along a stationary supply curve, ceteris paribus. Change in supply An increase or a decrease in the quantity supplied at each possible price. An increase in supply is a rightward shift in the entire supply curve. A decrease in supply is a leftward shift in the entire supply curve. 72 PART 2 | Microeconomics Fundamentals Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. on textile imports, and this action increases supply by allowing new foreign firms to add their individual supply curves to the U.S. market supply curve for textiles. Con-versely, higher U.S. trade barriers on textile imports shift the U.S. market supply curve for textiles leftward. 3-6b TECHNOLOGY Never has society experienced such an explosion of new production techniques.
eBook - PDF- Neva Goodwin, Jonathan M. Harris, Julie A. Nelson, Brian Roach, Mariano Torras, Jonathan Harris, Julie Nelson(Authors)
- 2019(Publication Date)
- Routledge(Publisher)
We can define six potential nonprice Determinants of Supply that would shift the entire supply curve: 1. A change in the number of sellers 2. A change in the technology of production 3. A change in input prices 4. A change in seller expectations about the future 5. A change in the prices of related goods and services 6. A change in the physical supply of a natural resource Consider, for example, a change in the technology used to make coffee that allows coffee to be pro-duced at lower cost. This would also shift the supply curve outward (to the right) as in Figure 4.2. With lower production costs, at a prevailing price of $1.00/cup supplying coffee becomes more appealing (i.e., profitable) to sellers. Thus they are willing to supply more coffee at the same price. As mentioned above, when describing shifts in supply economists normally view the curves as mov-ing horizontally (right or left), rather than vertically (up or down). In other words, when evaluating the nonprice Determinants of Supply: any factor that affects the quantity supplied, other than the price of the good or service offered for sale C HAPTER 4 – S UPPLY AND D EMAND 90 impact of a nonprice determinant of supply, economists ask whether the change increases or decreases the quantity supplied given a stable prevailing price. However, there are some cases where visualizing a curve shifting up or down may help you under-stand the underlying economic logic of the shift. Another way to think about lower production costs is to note that lower costs imply that sellers can accept a lower price for coffee, and still make a profit. In Figure 4.2, we see that with the original supply curve at S 1 , sellers would be willing to supply 1,000 cups of coffee at a price of $1.40. Now suppose a decrease in production costs means that sellers would be willing to supply 1,000 cups of coffee at a price of only $1.00 per cup, again shifting supply to curve S 2 .
eBook - PDFEconomics
Theory and Practice
- Patrick J. Welch, Gerry F. Welch(Authors)
- 2016(Publication Date)
- Wiley(Publisher)
53 Demand, Supply, and Price Determination CHAPTER OBJECTIVES Explain how demand and supply work using schedules and graphs. Demonstrate how demand and supply interact in markets to determine prices and to show equilibrium price and quantity, shortages, and surpluses in a market. Explain how changes in nonprice factors cause changes in demand and changes in supply. Illustrate how changes in demand and changes in supply affect equilibrium prices and quantities in markets. Illustrate how government‐imposed price ceilings and price floors influence market conditions. Introduce the concept and calculation of price elasticity, which measures buyers’ and sellers’ sensitivities to price changes. Explain how to measure price elasticity. CHAPTER 3 As we noted in Chapter 2, one way societies can make the basic economic decisions is through individual buyers’ and sellers’ actions in markets. Many societies, such as the United States and some countries in Western Europe and Asia, base their economic systems on such market decision making. There are two basic economic tools to study buyers and sellers and their behaviors in the marketplace: demand and supply. Together these tools help us understand the forces at work in a market economy. In this chapter, we explore demand and supply in detail and put the two together to see how they interact to determine the prices of goods and services. 54 Chapter 3 Demand, Supply, and Price Determination DEMAND AND SUPPLY Demand: The Buyer’s Side Demand, in economic terms, refers to buyers’ plans concerning the purchase of a good or service. For example, you might demand an airplane ticket to London, tennis les- sons, or a chemistry lab book. A business might demand workers, raw materials, machinery, or any other factor of production. Many considerations go into determin- ing the demand for a good or service.
eBook - PDF- Irvin Tucker(Author)
- 2018(Publication Date)
- Cengage Learning EMEA(Publisher)
Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 62 PART 2 • The Microeconomy Exhibit 9 summarizes the terminology for the effects of changes in price and nonprice determinants on the supply curve. 3–6 NONPRICE Determinants of Supply Now we turn to how each of the six basic nonprice factors affects supply. 3–6a Number of Sellers What happens when a severe drought destroys wheat or a frost ruins the orange crop? The damaging effect of the weather may force orange growers out of business, and sup-ply decreases. When the government eases restrictions on hunting alligators, the num-ber of alligator hunters increases, and the supply curve for alligator meat and skins increases. Internationally, the United States may decide to lower trade barriers on tex-tile imports, and this action increases supply by allowing new foreign firms to add their EXHIBIT 8 Movement along a Supply Curve versus a Shift in Supply Quantity of Blu-rays (millions per year) 10 30 40 50 0 5 20 10 15 20 Price per Blu-ray (dollars) (a) Increase in quantity supplied B A S 10 Price per Blu-ray (dollars) Quantity of Blu-rays (millions per year) 30 40 50 0 5 20 10 15 20 (b) Increase in supply S 1 S 2 B A Increase in quantity supplied Increase in price CAUSATION CHAIN Change in nonprice determinant Increase in supply CAUSATION CHAIN Part (a) presents the market supply curve, S , for Blu-rays per year. If the price is $10 at point A , the quantity supplied by firms will be 30 million Blu-rays. If the price increases to $15 at point B , the quantity supplied will increase from 30 million to 40 million Blu-rays.
eBook - PDF- Tucker, Irvin Tucker(Authors)
- 2016(Publication Date)
- Cengage Learning EMEA(Publisher)
................................................................................................................................................................................................................. ............................................................................................................................................................................................... ................................................................................................................................................................................................................. and subsidies, (5) expectations, and (6) prices of other goods. We will discuss these non-price determinants in more detail momentarily, but first we must distinguish between a change in quantity supplied and a change in supply . A change in quantity supplied is a movement between points along a stationary supply curve, ceteris paribus. In Exhibit 8(a), at the price of $10, the quantity supplied is 30 million Blu-rays per year (point A ). At the higher price of $15, sellers offer a larger “ quantity supplied ” of 40 million Blu-rays per year (point B ). Economists describe the effect of the rise in price as an increase in the quantity supplied of 10 million Blu-rays per year. CONCLUSION: Under the law of supply, any increase in price along the vertical axis will cause an increase in the quantity supplied, measured along the horizontal axis. A change in supply is an increase (rightward shift) or a decrease (leftward shift) in the quantity supplied at each possible price. If ceteris paribus no longer applies and if one of the six nonprice factors changes, the impact is to alter the supply curve ’ s location. CONCLUSION: Changes in nonprice determinants can produce only a shift in the supply curve and not a movement along the supply curve.
- Berkeley Hill(Author)
- 2013(Publication Date)
- Pergamon(Publisher)
For example, if income tax is increased on unmarried men and decreased on married men, leaving in taste towards good Swing in taste away from the good 62 An Introduction to Economics for Students of Agriculture average spendable income unchanged, it could be expected that the demand for sports cars in the country as a whole would decline but the demand for family saloons would increase. SHIFTS ALONG THE DEMAND CURVE AND SHIFTS OF THE WHOLE DEMAND CURVE FOR A COMMODITY To conclude this section on demand, it is worth recapitulating on the ways the factors described above affect the demand curve. A demand curve shows the quantities of a commodity which consumers are willing and able to take from the market at a range of given prices of the com-modity. If the price of the commodity is altered, because a shift in the supply curve causes the demand curve and the supply curve to intersect at a different level, more (or less) will be bought; this involves a move-ment along the demand curve. However, the whole curve will be shifted to the left or right by a change in consumer income, a change in the prices of competitive or complementary goods, changes in taste, popula-tion changes or a change in the distribution of incomes between house-holds. Having considered the demand for commodities in detail, the same approach will now be adopted to the supply of goods and services. B. The Theory of Supply THE MEANING OF SUPPLY AND FACTORS WHICH DETERMINE IT The supply of a commodity can be defined as the quantity that pro-ducers are willing and able to offer for sale in a given time period. Like demand, supply is a flow of goods and services. The supply of any good depends on five factors: (a) the price of the good (PA) (b) the prices of other goods which firms could produce or do produce (PB, .... ΛΟ (c) the prices of factors of production i.e.
eBook - PDFMicroeconomics
Theory and Applications
- Edgar K. Browning, Mark A. Zupan(Authors)
- 2019(Publication Date)
- Wiley(Publisher)
Learning Objectives • Understand how the behavior of buyers and sellers can be characterized through demand and supply curves. • Explain how equilibrium price and quantity are determined in a market for a good or service. • Analyze how a market equilibrium is affected by changes in demand or supply. • Explore the effects of government intervention in markets and how a price ceiling impacts price, quantity supplied, quantity demanded, and the welfare of buyers and sellers. • Show how elasticities provide a quantitative measure of the responsiveness of quantity demanded or supplied to a change in some other variable such as price or income. • *Explain the mathematics associated with elasticities. 14 Chapter Two • Supply and Demand • Demand and Supply Curves Markets are composed of buyers and sellers. Our analysis of the behavior of buyers relies on demand curves; supply curves depict the behavior of sellers. Let’s begin with the buyer, or demand, side of the market. The Demand Curve The amount of a good that a consumer or a group of consumers wishes to purchase depends on many factors: income, age, occupation, education, experience, buyer preferences, taxes, subsidies, expectations, and so on. It also depends on the price of the good. According to the law of demand, the lower the price of a good, the larger the quantity consumers wish to pur- chase. To this law we must add an important condition. The relationship will hold only if the other factors affecting consumption, such as income and preferences, do not change at the same time that the good’s price changes. The assumption that all other factors remain constant is an important one to keep in mind when examining many relationships in economics. Figure 2.1 shows a hypothetical market demand curve for 55-inch flat-screen televisions (TVs). At each possible price, the curve identifies the total quantity desired by consumers.
eBook - PDF- Steven A. Greenlaw, David Shapiro, Daniel MacDonald(Authors)
- 2022(Publication Date)
- Openstax(Publisher)
It might be an event that affects supply, like a change in natural conditions, input prices, or technology, or government policies that affect production. How does this economic event affect equilibrium price and quantity? We will analyze this question using a four-step process. Step 1. Draw a demand and supply model before the economic change took place. To establish the model requires four standard pieces of information: The law of demand, which tells us the slope of the demand curve is negative; the law of supply, which tells us that the slope of the supply curve is positive; the shift variables for demand; and the shift variables for supply. From this model, find the initial equilibrium values for price and quantity. Step 2. Decide whether the economic change you are analyzing affects demand or supply. In other words, does the event refer to something in the list of demand factors or supply factors? Step 3. Decide whether the effect on demand or supply causes the curve to shift to the right or to the left, and sketch the new demand or supply curve on the diagram. In other words, does the event increase or decrease the amount consumers want to buy or producers want to sell? Step 4. Identify the new equilibrium and then compare the original equilibrium price and quantity to the new equilibrium price and quantity. 64 3 • Demand and Supply Access for free at openstax.org Let’s consider one example that involves a shift in supply and one that involves a shift in demand. Then we will consider an example where both supply and demand shift. Good Weather for Salmon Fishing Suppose that during the summer of 2015, weather conditions were excellent for commercial salmon fishing off the California coast. Heavy rains meant higher than normal levels of water in the rivers, which helps the salmon to breed.
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