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Chapter 21.2 Factors Affecting Supply Change in Supply A change in supply occurs when producers offer a different quantity of output at each possible price. This might happen because of changes in the cost of production, in gov’t policies, in the number of producers or in the expectations of businesses. When supply goes down, the supply curve shifts to the left. When supply goes up, the supply curve shifts to the right. continued Businesses use the four factors of production goods and services. When prices of these resources fall, costs of production fall. Producers are then willing and able to offer more of the product for sale at each price. The supply curve shifts to the right. When prices of resources rise, production costs rise. Producers are then willing and able to offer more of the product for sale at each price. The supply curve shifts to the left. continued Productivity is the degree to which resources are being used efficiently to produce goods and services. Workers are more efficient when they produce output in the same amount of time. This reduces the company’s costs. More products are produced at every price, which shifts the supply curve to the right. When productivity falls, production costs go up. The supply curve shifts to the left. continued Technology refers to the methods or processes used to make goods and services. New technology can speed up ways of doing things, which can cut a business’s costs. This pushes the supply curve to the right, showing that the business is willing to supply more at the same price. continued Gov’t actions can affect the cost of production, causing a change in supply. In general, tighter gov’t regulations restrict supply, causing the supply curve to shift to the left. Relaxed regulations lower the cost of production, shifting the supply curve to the right. To businesses, higher taxes mean higher costs, pushing the supply curve to the left. Lower taxes mean lower costs, shifting the supply curve to the right. continued A subsidy is a gov’t payment to an individual, business or other group for certain actions. A subsidy paid to a producer lowers the cost of production. This encourages current producers to remain in the market and new producers to enter. When subsidies are repealed, costs go up, producers leave the market and the supply curve shifts to the left. continued Producers’ expectations also affect supply. If they expect strong consumer demand, they will produce more. If they expect weak demand, they will produce less. A change in the number of suppliers causes a change in market supply. As more firms enter an industry, they increase the supply in the market, shifting the curve to the right. If some suppliers leave, supply decreases, shifting the curve to the left. Elasticity of Supply Supply elasticity is a measure of how the quantity supplied of a good or service changes in response to changes in price. If the quantity changes a great deal when prices go up or down, the product is said to be supply elastic. If the quantity changes very little, the supply of that product is inelastic. continued Supply elasticity depends on how quickly a company can change the amount it makes in response to price changes. Products that cannot be made quickly or that are expensive to produce tend to be supply inelastic. Products that can be made quickly without large investments of money or skilled labor tend to be supply elastic.