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 AS 1.3
3 credits

   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 = 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
                              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

                                       Label &
                                       Units on
                                       Even Scale
                          D            Plot Points
    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

   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
•   Trade factors
•   Cultural influences
•   Political factors
   Costs of Production
    – Eg. Wages, raw materials, electricity,
    – If costs of production increase, supply

   Increased Productivity (increases
    – 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
        – New technology increases supply
          because it increases a firms
       Changes in Other (related) Goods
         – If the price of a related good changes it
           can affect the firms willingness to
         – 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
       The Health and Safety Act
       Labelling and packaging requirements

       Zoning laws – where you can build

       Noise laws

       Anti Pollution laws
   Trade Factors
    – 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 &
    – Subsidies for “merit gods” eg. Cycle
    – Company tax
    – Overall economic policy – eg. Interest
Market Supply

   A market is made up of more than one
   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 cost of advertising
    – 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
          May result in increased costs and maybe increased
    – 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

   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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