Download Chapter 4 Supply

SECTION 2
Changes in Supply
Essential Question:
 Identify the two ways that producers can
increase profit, List and briefly describe the
6 non-price determinants of supply, and
evaluate whether a tax or a subsidy is more
preferable to a producer and explain why
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SECTION 2
Changes in Supply
The role of Profit
 Profit is the key motivator behind increase and
decrease in profit. There are two key ways to
increase profit
 Profit can be increased by generating higher
revenues
 Selling greater quantity of products
 Selling products for higher prices
 Profit can be increased by lowering costs of
production
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SECTION 2
Changes in Supply
Determinants of supply:
 Resource prices- When the materials required
to produce change in price, it can raise or lower
production costs which can effect the profit per
unit. If costs decrease, producers make more
profit and produce more. If costs increase,
producers may make less product as they have
to raise prices to make the same amount of
profit
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SECTION 2
Changes in Supply
Determinants of supply:
 Technology- Developing new technology
can lead to increase production efficiency
and lower production costs per item.
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SECTION 2
Changes in Supply
Determinants of supply:
 Competition- when more producers
enter/leave the market, an increase/decrease
in the available supply of the product can
occur.
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SECTION 2
Changes in Supply
Determinants of supply:
 Prices of related goods- if producers have
reason to think that there will be a shift in
demand for a related good causing an
increase/decrease at each and every price,
they may increase/decrease supply.
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SECTION 2
Changes in Supply
Determinants of supply:
 Producer expectations- Sometimes
producers have reasons to believe that their
will be higher/lower costs in the future or
higher/lower demand in the future and they
adjust their supply levels accordingly
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SECTION 2
Changes in Supply
Determinants of supply:
 Government Tools- Often the government
can have an impact on producers costs
 Tax- since this is a cost that producers have to
pay, increases/decreases are closely monitored
 Subsidy- Either a reduction in tax or an actual
money payment to a business.
 Regulation- A law that could force a company to
change the way it does business resulting in
higher/lower costs.
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