Supply and Supplier Expected Prices

Learning Objectives:

1. How will a change in the number of suppliers effect the supply curve?

2. How will a substitute product effect the supply curve?

3. How will a change in technology effect the supply curve?

4. How will an expected price change effect the supply curve?

Describe the exogenous variable: price of substitute

• Price of our product does not change but the price of the substitute changes (increases or decreases)

Describe an example of previous question

We produce masks and bandanas. Assume a bandana cannot be substituted for a mask (ceteris patibus conditions)

What would happen to the supply of masks if the price of bandanas increases?

• Price of bandanas is more than masks

• Supply curve for masks would shift to the left

Think from a producer’s point of view? (think like a capitalist)

• Which one would make more money

• Which would we want to produce

  • Bandanas make more money so we would want to produce more bandanas and less masks

What would happen to the supply curve of bandanas

• The price of bandanas is more than masks

• We want to make money because we are capitalists

• The supply curve for bandanas would increase

• Shift to the right

Describe the exogenous factor of changes in the technologies used in production

People institute technology that will improve production, I.E., save them time or money leading to lower input costs

Give an example of improvements in technology

New machine that will allow us to make more masks and bandanas

Increase in supply

Supply curve shifts to the right or downward

Describe the exogenous factor: Number of suppliers

What would happen to the supply curve if the number of suppliers increased? Ceteris paribus conditions.

• Increase the number of suppliers

• More masks are being made

• Increases the supply

• Supply curve would shift to the right

Vice versa if there were less suppliers

Describe the exogenous factor: Price expectations

As a supplier we want to make money

Look at price expectations from the supplier point of view

What if we expect the price of masks to go up in the future?

• If we expect the price of masks to increase in the future. We would decrease supply of masks now so we could sell them for more profit later. (think like a capitalist)

• We want to make the most money, so we will decrease supply now, and sell them later when the prices goes up

Supply curve of masks would shift to the left

• We would create a shortage which would lead to higher prices

• Think about gas prices when the pipeline was damaged a few years ago