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Movement along a Supply Curve vs. Shifting the Supply Curve S P1 P Price Price S Quantity Q Q1 P Quantity Q Q1 S1 Law of Demand Holding all other things constant (ceretis paribus), a price increase will result in an increase in quantity supplied Price P1 P Quantity Q Q1 Movement along a Supply Curve As the price increases from P to P1, the quantity supplied from Q to Q1 will ________ Price P1 P Quantity Q Q1 Movement along a Supply Curve As the price increases from P to P1, the quantity supplied from Q to Q1 will increase. Price P1 P The Law of Demand Quantity Q Q1 Shift in Supply Factors that shift Supply: 1. Change in the Cost of Production (input prices) 2. Change in Profit Opportunities 3. Change in Producer Price Expectations 4. Number of Sellers in the Market 5. Change in Technology P w/Efficiency Improvement Price S “Determinants of Supply” Quantity Q Q1 S1 Shift in Supply Factors that shift Supply: 1. Change in the Cost of Production (input prices) 2. Change in Profit Opportunities 3. Change in Producer Price Expectations 4. Number of Sellers in the Market 5. Change in Technology P w/Efficiency Improvement Price S “Determinants of Supply” Quantity Q Q1 S1 Factors that shift supply Price S1 S 1. Change in the Cost of Production (input prices) - Input prices rising leads to decreased supply P Quantity Q1 Q “Determinants of Supply” Factors that shift supply Price S S1 1. Change in the Cost of Production (input prices) - Rises in input prices leads to decreased supply - Decreases in input price leads to increased supply P Quantity Q Q1 “Determinants of Supply” Factors that shift supply Price S P Quantity Q Q1 S1 2. Change in Profit Opportunities - If producers see there is more profit to be made producing another good: - They will increase supply of that good “Determinants of Supply” Factors that shift supply Price S1 P Quantity Q1 Q S 2. Change in Profit Opportunities - If producers see there is more profit to be made producing another good: - They will increase supply of that good - They will decrease the supply of the original good “Determinants of Supply” Factors that shift supply Price S P Quantity Q Q1 S1 3. Change in Producer Price Expectations - If producers expect future prices to decrease, they will increase supply of that good “Determinants of Supply” Factors that shift supply Price S1 P Quantity Q1 Q S 3. Change in Producer Price Expectations - If producers expect future prices to decrease, they will increase supply of that good - If prices are expected to rise, they will decrease supply “Determinants of Supply” Factors that shift supply Price S S1 4. Number of Sellers in the Market - If the number of sellers increases, then supply will increase. P Quantity Q Q1 “Determinants of Supply” Factors that shift supply Price S1 P Quantity Q1 Q S 4. Number of Sellers in the Market - If the number of sellers increases, then supply will increase. - If the number of sellers decreases, then supply will decrease. “Determinants of Supply” Factors that shift supply Price S S1 5a. Changes in Technology - efficiency - If technology improves efficiency. Supply will increase. P Quantity Q Q1 “Determinants of Supply” Factors that shift supply Price S1 P Quantity Q1 Q S 5a. Changes in Technology - efficiency - If technology improves efficiency, supply will increase - If technology efficiency decreases, supply will increase “Determinants of Supply” Factors that shift supply Price S1 P Quantity Q1 Q S 5b. Changes in Technology - generation - If a new technology comes to market, supply will decrease for the old good “Determinants of Supply” Factors that shift supply Price S P Quantity Q Q1 S1 5b. Changes in Technology - generation - If a new technology comes to market, supply will decrease for the old good - If a new technology fails, supply will increase for the old good “Determinants of Supply” Shift in supply Price S S1 Increase in supply from S to S1 shows that at the same price (P), the quantity supplied from Q to Q1, _________ P Quantity Q Q1 Shift in supply Price S S1 Increase in supply from S to S1 shows that at the same price (P), the quantity supplied from Q to Q1, increases P Quantity Q Q1 Movement along a Supply Curve vs. Shifting the Supply Curve S P1 P Price Price S Quantity Q Q1 P Quantity Q Q1 S1
