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2 technology technology determines how much inputs

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2. Technology - Technology determines how much inputs are required to produce a unit of output - A cost saving technological improvement has the same effect as a fall in input prices= Shifts the supply curve to the right. 3. Number of Sellers - An increase in the number of sellers increases the quantity supplied at each price= Shifts supply curve to the right 4. Expectations - Example: Events in the middle east lead to expectations of higher oil prices - In response owners in Texas oilfields reduce supply now, save some inventory to sell later at the higher price= Supply curve shifts to the left - In general, sellers may adjust supply when their expectations about future prices changes (if the good is not perishable)
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EXAMPLE: Draw a supply curve for tax return preparation software. What happens to it in each of the following scenarios? a) Retailers cute the price of the software. b) A technological advance allows the software to be produced at a lower cost.
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c) Professional tax return preparers raise the price of the services they provide. d) Equilibrium Equilibrium Price: -The price that equates quantity supplied with quantity demanded. Surplus
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- When quantity supplied is greater than quantity demanded. Facing a surplus sellers try to increase sales by cutting price. This causes the quantity demanded to rise and the quantity supplied to fall. - Prices will continue to fall until the surplus is eradicated Shortage - When quantity demanded is greater than quantity supplied. - *If you are not at the equilibrium market forces will push you towards the equilibrium. Three steps in analyzing changes in equilibrium: To determine the effects of any event: 1. Decide whether the event shifts the supply curve or the demand curve or both 2. Decide in which direction the curve shifts 3. Use a supply demand diagram to see how the shift changes the equilibrium price and quantity. EXAMPLE ONE: - Event to be analyzed: Increase in price of gas
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1. Demand curve shifts 2. Demand curve shifts right because high gas prices make hybrids more attractive relative to other cars. 3. This shift causes an increase in price and quantity of hybrid cars. NOTE: Notice that when price rises producers supply a larger quantity of hybrids, even though the supply curve does not shift. *Always be careful to distinguish between a shift in a curve and a movement along the curve. Shifts of the Curve vs. Movement Along the Curve 1. Change in supply= A shift in the supply curve - Occurs when a non price determinant of supply changes (like technology or costs) 2. Change in the quantity supplied= A movement along a fixed supply curve. -This occurs when price changes. 3. Change in demand= A shift in the demand curve -Occurs when a non price determinant of demand changes (like income or number of buyers) 4. Change in the quantity demanded= A movement along a fixed demand curve - Occurs when price changes EXAMPLE TWO: A shift in both Supply and Demand -Event: The price of gas rises and new technology reduces production costs. 1. Both curves shift
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2 Technology Technology determines how much inputs are...

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