ECONOMICS

Chapter 3: Demand, Supply, and Prices

L3.6 Changes in Supply

• Determinants of Supply:

  • Number of sellers

  • Price of the product

  • Future expectations

  • Prices of related goods

  • Price of input

  • Industry size

  • Government

  • Technology

• Change in Supply: Alteration in production/output of a good/service by suppliers.

Lesson Objectives

• Understand how production costs affect supply.

• Describe three ways the government influences supply.

• Identify other factors that change supply (besides price).

• Explain how businesses decide where to produce goods.

• Real life examples expected from students.

Warm-Up Activity: The Ice Cream Stand Dilemma

• Scenario: Hot day increases demand for ice cream, raising prices.

• Task: Discuss whether to sell all ice cream now or wait until tomorrow.

Introduction to Supply Shifts

• Movement Along the Supply Curve: Change in price of the good itself.

  • Higher price = more supply (up movement).

  • Lower price = less supply (down movement).

  • Example: Coffee prices rise, leading to more coffee production.

• Shift in the Supply Curve: Non-price factor changes supply.

  • Rightward Shift (Increase): More supplied at every price level.

  • Leftward Shift (Decrease): Fewer supplied at every price level.

  • Example: New factory boosts smartphone production, increasing supply.

Factors That Affect Supply

• Determinants:

  • Input costs.

  • Government influence.

  • Technology advancements.

  • Global economy changes.

  • Future prices expectations.

  • Number of suppliers.

Input Costs and Changes in Supply

• Input Costs: Money spent on raw materials, labor, machinery.

• Effects:

  • Higher input costs → Decrease in supply.

  • Lower input costs → Increase in supply.

• Example: Rising oil prices increase transportation costs, reducing supply.

Government Policies and Supply

• Subsidies: Payments to businesses, lowering production costs and increasing supply.

  • Example: Farmers receiving money to grow more wheat.

• Regulations: Can either increase or decrease supply based on efficiency or added costs.

  • Example: Laws permitting new machines can increase supply.

• Excise Taxes: Higher costs reduce supply.

  • Example: Tax on sugary drinks leads to less production.

Technology and Its Effect on Supply

• Improved processes allow faster production, increasing supply.

  • Example: Robot assembly lines producing cars more efficiently.

Global Economy and Supply

• International events can decrease supply locally.

  • Example: Bad weather impacting banana production raises prices elsewhere.

Expectations About Future Prices

• Rising prices lead to holding goods now, reducing current supply.

• Falling prices lead to quicker sales, increasing current supply.

  • Example: Anticipating gold price changes affects jewelry supply decisions.

Number of Suppliers and Market Competition

• More suppliers increase goods available, shifting supply right.

• Fewer suppliers decrease goods available, shifting supply left.

  • Example: Expansion of fast-food chains increasing food supply.

Class Activity: Match the Determinant Game!

• Task: Match causes with supply effects and discuss why supply changes.

Summary of Key Takeaways

• Key Supply Determinants:

  • Input costs, Government influence, Technology improvements, Global events, Future price expectations.

• Supply Curve Shifts: Rightward increases supply and lowers prices; Leftward decreases supply and raises prices.

Exit Ticket Question

• Provide a real-world example of a supply shift and the cause.