Lecture 4s.pdf

# Q s quantity 12 9 6 3 q s 8 6 4 2 q s 20

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(Q s = quantity supplied) 18 15 12 9 6 3 0 Q s Godiva 12 10 8 6 4 2 0 Q s Dove + + + + = = = = 30 25 20 15 + = 10 + = 5 + = 0 Market Q s \$0.00 6.00 5.00 4.00 3.00 2.00 1.00 Price

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GESB 1006: Economics of Everyday Life University of Macau The Market Supply Curve \$0.00 \$1.00 \$2.00 \$3.00 \$4.00 \$5.00 \$6.00 0 5 10 15 20 25 30 35 P Q P Q S (Market) \$0.00 0 1.00 5 2.00 10 3.00 15 4.00 20 5.00 25 6.00 30
GESB 1006: Economics of Everyday Life University of Macau Supply Curve Shifters The supply curve shows how price affects quantity supplied, other things being equal. These “ other things ”, once again, refers to non-price determinants of supply. What are these factors shifting the supply curve?

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GESB 1006: Economics of Everyday Life University of Macau Supply Curve Shifters: Input Prices Input Prices Supply is negatively related to prices of inputs. Examples of input prices : wages, prices of raw materials. Why? A fall in input prices makes production more profitable at each output price; Firms supply a larger quantity at each price. The supply curve shifts to the right.
GESB 1006: Economics of Everyday Life University of Macau Supply Curve Shifters: Input Prices Suppose the price of cocoa beans falls. At each price, the quantity of chocolate supplied will increase (by 5 in this example). \$0.00 \$1.00 \$2.00 \$3.00 \$4.00 \$5.00 \$6.00 0 5 10 15 20 25 30 35 P Q

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GESB 1006: Economics of Everyday Life University of Macau Supply Curve Shifters: 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, shifting the supply curve to the right. Number of sellers An increase in the number of sellers leads to an increase in the quantity supplied at each price. It shifts the supply curve to the right
GESB 1006: Economics of Everyday Life University of Macau Supply Curve Shifters: 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, shifting the supply curve to the right. Number of sellers An increase in the number of sellers leads to an increase in the quantity supplied at each price. It shifts the supply curve to the right Can you name an example where supply curve shifts to the left?

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GESB 1006: Economics of Everyday Life University of Macau Supply Curve Shifters: Technology Expectations about Future Example: Wars in the Middle East lead to expectations of higher oil prices Owners of Texas oilfields reduce supply now, save some inventory to sell later at the higher price Supply curve shifts left Sellers may adjust supply* when their expectations of future prices change (*If good not perishable)
GESB 1006: Economics of Everyday Life University of Macau Summary of Variables that Influence Sellers

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GESB 1006: Economics of Everyday Life University of Macau Supply Curve Shifters: Active Learning 2 Draw a supply curve for Coke. What happens to it in each of the following scenarios?
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