# Supply

Document Sample

```					 Supply
AS 1.3
3 credits
Quiz

   Define Market Supply
   State the calculation for Market Supply
   Describe an indirect tax
   Describe a subsidy
   Define Productivity
   Total of all individual supply at each and every price
   Horizontal addition of individual quantity supply at
each and every price
   A tax paid by a third party to the govt. Usually on
the sale of goods and services
   A payment to producers from the government to
increase the production of good considered to be a
merit to society (good for society)
   An increase in output per unit of input
Supply
   Supply = the               Supply Schedule for pies
quantity of a good or          Supplied in a week
service a producer is   Price (\$) Quantity Supplied
willing and able to                (no. of pies)
buy at each and every     0.25                1
price
0.50             3
   Supply Schedule =
a table showing           1.00             5
combinations of price
and quantity Supplied     2.00            10
Supply Curve = a graph plotting combinations of
price and quantity Supplied

Title
Label &
Units on
axes
Even Scale
D            Plot Points
joined
Curve
labelled
Change in Quantity Supplied
   Change in quantity Supplied = when price
changes there is a movement along the
Supply curve from one quantity to another.

Law of Supply
   When Price decreases, quantity Supplied
decreases                D
   (or When Price increases, quantity Supplied
increases )
Change in Supply
   A Supply curve is drawn assuming “ceteris
paribus”.

   Ceteris Paribus = “all determinants affecting
Supply are held constant except price.”

   If any determinant apart from price changes, we
must shift (move) the Supply curve. This is called
a change in Supply.
Increase in Supply             Decrease in Supply

Increase = shift right        Decrease = shift left

Demand and Supply curves have the same rule:
Increase = shift right
Decrease = shift left
Determinants of Supply
So what are the factors that will cause the entire Supply
curve to shift?

•   Costs of Production
•   Changes in Productivity
•   Technology
•   Price of other goods
•   Environmental factors
•   Legal factors
•   Cultural influences
•   Political factors
   Costs of Production
– Eg. Wages, raw materials, electricity,
petrol,
– If costs of production increase, supply
decreases.

   Increased Productivity (increases
supply)
– The amount of output per unit of input
– Eg. Productivity increases from 10 boxes per
hour to 13 boxes per hour.
– Productivity can result from labour (workers)
working more effectively or from new capital
(machines and equipment)
   Technolgy
– Eg. Firm invests in new computer
system.
– New technology increases supply
because it increases a firms
productivity.
   Changes in Other (related) Goods
– If the price of a related good changes it
can affect the firms willingness to
supply.
– Eg. Price of beef falls. Farmers may
switch from supplying beef to supplying
more lamb.
   Environmental factors
– Being more “environmentally friendly”
increases costs of production

   Legal Factors
– Changes to laws can affect firms ability
to supply. Costs of production increase
as firms have to comply (follow) new
laws.
 The Health and Safety Act
 Labelling and packaging requirements

 Zoning laws – where you can build

 Noise laws

 Anti Pollution laws
– Firms are affected by:
– Tariffs = tax on imported goods
– Subsidy = payment to local producers
– Quota = limit on quantity allowed

   Cultural Factors
– Being “Culturally Sensitive” can increase
costs of production
 Eg. Paying for iwi consultation
 Eg. Avoiding building on sacred ground
   Political Factors
– Taxes on “demerit goods” – alcohol &
cigarettes
– Subsidies for “merit gods” eg. Cycle
helmets
– Company tax
– Overall economic policy – eg. Interest
rates
Market Supply

   A market is made up of more than one
producer
   Market Supply = the sum of individual
supply at each and every price
   It is calculated by horizontally adding
individual supply curves at each and
every price.
Price       Sarah’s    Sam’s      Sarnia’s   Market Quantity
\$ per box   Quantity   Quantity   Quantity   Supplied
Supplied   Supplied   Supplied

5            3          2          1

8            6          4          3

12            9          5          5
Impacts of Supply Decisions
   For excellence you need to be able to
analyse the impact of supply decisions
(keep your producer hat firmly on!!)
   Eg. Govt decides to allow Easter trading:
– Increased sales = more profits
   But maybe it just means less sales after Easter?
– Increased staffing required
– May have to pay overtime rates
– Increased costs for electricity etc.
Impacts of Supply Decisions
   Eg. Pam sells heaters and govt. has just
increased safety standards required:
– May have to re-train staff
– May choose to switch to producing a related
good
   May result in increased costs and maybe increased
profits
– May have to change production methods
 Costs of production increase
 May introduce technology
– Costs increase but may increase productivity
Impacts of Supply Decisions
For each example, analyse the effects on supply. Use
economic terms like profit, costs, revenue, related goods
etc. and …. Keep your producer hat on!!
   Eg. Krystle’s clerical service: Govt
subsidises firms who recycle paper:
   Eg. Hey Mi’s Record Store: Govt reduces
the tariff on imported DVD’s but keeps the
tariff on imported CD’s
   Eg. Moniques hat shop: Monique decides to
import expensive hats from Milan
Impacts of Supply Decisions
As well as Producers, other groups are affected by supply
decisions:

   Eg. Hey Mi’s Record Store: Govt reduces
the tariff on imported DVD’s but keeps the
tariff on imported CD’s
Consider the impact on:
– Government
– Consumers
– DVD player shops eg. Noel Leemings
– Jessica’s Records who only sell CD’s
– Movie theatres

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