Supply Curve

• $Supply curve:$ a function that shows the quantity supplied at different prices
• $Quantity supplied:$ the quantity that sellers are willing and able to sell at a particular price
• Supply curve tells us the maximum quantity that suppliers will supply at different prices or the minimum price at which suppliers will sell different quantities
• $“Law of supply”:$ the higher the price, the greater the quantity supplied

What Shifts the Supply Curve?

• Decrease in cost increases supply
  • Decrease in costs means the supply curve shifts down and to the right
• Higher costs means that the supply curve shifts up and to the left
• Important supply shifters:
  • Technological innovation and changes in the price of inputs
  • Taxes and subsidies
  • Expectations
  • Entry or exit of producers
  • Changes in opportunity costs
• Technological innovations and changes in the price of inputs:
  • Improvements in technology can reduce costs, increasing supply
• Taxes and subsidies:
  • A tax on outputs is the same as an increase in costs
• Expectations:
  • Suppliers who expect that prices will increase in the future have an incentive to sell less today so that they can store goods for future sale
  • Expectation of a future price increase shifts supply curve to the left
• Entry or exit of producers:
  • When US signed NAFTA, producers of lumber entered US market an increased supply of lumber
  • Shift to right of supply curve
  • Entry of more firms meant that at any price, a greater quantity of lumber was available (supply curve shifted to the right)
• Changes in opportunity costs:
  • When unemployment rate increases, more people tend to go to college because if you can’t get a job you aren’t giving up a lot of opportunities by going to college
  • Decrease in opportunity costs shifts the supply curve down and to the right