Macroeconomics SUPPLY Economics 111
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This 2 page Class Notes was uploaded by amber weiss on Monday February 15, 2016. The Class Notes belongs to Economics 111 at Southern Illinois University Edwardsville taught by Mary Anne Pettit in Spring 2016. Since its upload, it has received 19 views. For similar materials see Macroeconomics in Economcs at Southern Illinois University Edwardsville.
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Date Created: 02/15/16
Economics 111 Supply February 8 How markets allocate resources: st 1 ndsupply schedule 2 : supply curve change is QUANTITY SUPPLIED change 3 : Shift in Supply Supply - A supply schedule shows quantities of a good that producers are willing and able to produce at various prices out of a set of all possible prices over a specified period of time. - Shows relationship between price and quantity supplied - What happens to Qs as price decreases? GOES DOWN - What happens to Qs as price Increases? GOES UP - THEY MOVE IN THE SAME DIRECTION - Law of Supply: there will always be a direct or positive relationship between price and quantity supplied Price (P) Quantity Supplied (Qs) $5 60 $4 50 $3 35 $2 20 $1 5 PRICE PLAYS A DIFFERENT ROLE FOR PRODUCERS LOWER PRICE, LOWER QUANTITY SUPPLIED A change in Qs vs. Change in Supply? - VERY IMPORTANT - A change in Qs reflects a move along the supply curve as price changes--- - Remember: a price is determined by the interaction between SUPPLY AND DEMAND A change or shift in supply - A change/shift in supply is movement of the entire curve - There are 2 possible shifts: 1. Rightward Shift- increase in supply, more supplied at ALL possible prices 2. Leftward Shift- decrease in supply, less supplied at ALL possible prices Non- Price Determinants of Supply: 1. Cost of inputs - A cost a producer has to pay for factors of production - As cost increases, supply decreases (more paid, less supply) - As cost decreases, supply increases (cost less, more supply) 2. Technology - Level of sophistication production process - Almost always INCREASES SUPPLY (advances things) 3. Number of producers in the market (market supply) - Producers leave (fewer) --- supply decreases - Producers enter (more) --- supply increases 4. Prices of related goods - Producers that have production options - “choice” - Example) farmers can grow corn, beans, wheat, etc… S 2 P2 S1 P1 Q1 Q2 CORN WHEAT Do producers produce more? Price goes from P1Q1 to P2Q2 [YES IT DOES] - As price can increase, producers shift - Wheat will decrease because corn is going up in price - Depends on resources, if they have “choices” can produce more. 5. Government policies --- taxes and subsidies a. Taxes (another cost of production) - When a business starts has to pay taxes - Tax INCREASE supply DECREASE - Tax DECREASE supply INCREASE b. Subsidies: can be a special tax treatment (reduction) or a direct payment to encourage (right shift) or discourage (left shift) production GOVERNMENT STILL HAS A LIMITED ROLE, BUT IMPORTANT 6. Expectations - Positive expect increases - Negative expect decreases (rethink decisions)
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