Change In Supply

4 Key excerpts on "Change In Supply"

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  eBook - ePub

  Media Economics

  Applying Economics to New and Traditional Media

  • Colin Hoskins, Stuart M. McFadyen, Adam Finn(Authors)
  • 2004(Publication Date)
  • SAGE Publications, Inc

    (Publisher)

  chapter 14 .

  3.4 Change In Supply

  A change in the value of one of the determinants of supply other than own price causes a Change In Supply . Economists use this term to avoid confusion with change in quantity supplied , which is caused by a change in the price of the product itself. If there is a Change In Supply, this causes a shift of the entire supply curve. If there is an increase in supply, the supply curve will shift to the right, as more will be supplied than before at any given price. If there is a decrease in supply, the supply curve will shift to the left, indicating that less will be supplied at any given price.

  3.5 Effect of Change In Supply on Price and Quantity

  A Change In Supply causes the equilibrium price to change in the opposite direction to the Change In Supply. In contrast, the equilibrium quantity changes in the same direction as the Change In Supply. Figure 3.4 illustrates an increase in supply from S0 to S1 , resulting in a decrease in equilibrium price from P0 to P1 and an increase in equilibrium quantity from Q0 to Q1 . Figure 3.5 shows a decrease in supply from S2 to S3 , causing the equilibrium price to increase from P2 to P3 and the equilibrium quantity to decrease from Q2 to Q3 .

  Figure 3.4    An Increase in Supply

  Note: D indicates demand curve; P, price; Q, quantity; S, supply curve.

  Figure 3.5    A Decrease in Supply

  Note: D indicates demand curve; P, price; Q, quantity; S, supply curve.

  3.6 Causes of a Change In Supply

  A Change In Supply is caused by a change in the value of any determinant other than own price. Key determinants are the prices of inputs , the state of technology , and the number of suppliers .

  3.6.1 Prices of Inputs

  Input prices directly affect the cost of producing the industry output. A decrease in input price makes it less expensive to produce output, and firms will be willing to supply more at any given product price. Hence a decrease in input price will increase supply and shift the supply curve to the right, as in Figure 3.4 . Similarly, an increase in input price will decrease supply and shift the supply curve to the left, as in Figure 3.5

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  eBook - ePub

  Economics and Free Markets

  A Reader

  • Howard Baetjer(Author)
  • 2017(Publication Date)
  • Cato Institute

    (Publisher)

  an increase in supply signifies a decrease in marginal cost, the cost of producing each additional quantity.

  Of course, the opposite holds for a decrease in supply: represented by a shift of the curve upward and left, it signifies an increase in marginal cost. As with demand, it is useful to think about changes in supply as either right or left shifts or up or down shifts, depending on whether we are focused on changes in quantities or changes in costs.

  Factors That Can Change Supply Various factors can change supply—cause the whole supply curve to shift. The most important are changes in the following:

  • Number of suppliers. This factor is straightforward; more suppliers mean greater supply, and vice versa.

  • Input prices. A change in the price of a resource used to produce a good will change the supply of that good by making it more or less costly to produce. For example, an increase in the price of fertilizer would decrease the supply of corn by making it more costly to produce corn on land that needs fertilizer.

  • Technology. In our era, nothing is doing so much to increase the supply of goods as improvements in technology, in the tools and techniques used to produce. Electronics provide the clearest example, as improvements in technology steadily drive down the cost and increase the availability of computers, smartphones, and all sorts of other devices.

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  7Price Determination: Demand and Supply Together

  Now that we have considered what demand and supply mean, let’s see how their interaction determines market prices and quantities exchanged.

  In any market, there is a strong tendency for the going price to approximate the theoretical equilibrium price, also known as the “market-clearing” price. In a supply-and-demand graph, that’s the price at the intersection of the supply curve and demand curve. Correspondingly, there is a strong tendency for the quantity of the good or service exchanged in a period to approximate the equilibrium quantity. In a standard graph, that’s the quantity at the intersection of the supply curve and demand curve (Figure 7.1

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  Business Economics

  • Rob Dransfield(Author)
  • 2013(Publication Date)
  • Routledge

    (Publisher)

  Market forces – changes in demand and supply. The relative strength of demand and supply determines the market prices of goods.

  Market prices act as signals to producers about the strength of demand for the products they supply. Rising prices act as an incentive for producers to produce more of certain types of goods. In contrast, falling prices will encourage consumers to buy more goods as they become relatively cheaper. Gaining a clear understanding of the four laws of demand and supply will enable you to have a good grasp of how the market works.

  Key Term

  Changes in demand and shifts in demand – economists distinguish between a ‘change’ in ‘demand’ (where the whole demand curve changes its position, e.g. as a result of a change in tastes or incomes), and ‘changes’ in ‘quantity demanded’ (i.e. movements along a given demand curve). Changes in quantity demanded result from a change in the price of the good whose demand is being examined.

  3.4  The construction of demand and supply curves Demand and supply curves

  A demand curve is used by economists to illustrate the relationship between price and quantity demanded. It shows demand and changes in quantity demanded. It is useful for business organizations trying to predict the effect of different prices on demand for their products. It helps them to decide how much of a good to make in order to meet quantity demanded.

  Common sense and personal experience explain the shape of the demand curve. The curve slopes down from left to right because more people can afford to buy goods at lower rather than at higher prices. Existing purchasers of a good will be tempted to buy more of a good at a lower price because they have to give up less of their income to make the purchase. Table 3.4 and Figure 3.1

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  Economics for Investment Decision Makers

  Micro, Macro, and International Economics

  • Christopher D. Piros, Jerald E. Pinto(Authors)
  • 2013(Publication Date)
  • Wiley

    (Publisher)

  CHAPTER 1

  DEMAND AND SUPPLY ANALYSIS: INTRODUCTION

  Richard V. Eastin Gary L. Arbogast, CFA

  LEARNING OUTCOMES

  After completing this chapter, you will be able to do the following:

  • Distinguish among types of markets.
  • Explain the principles of demand and supply.
  • Describe causes of shifts in and movements along demand and supply curves.
  • Describe the process of aggregating demand and supply curves, the concept of equilibrium, and mechanisms by which markets achieve equilibrium.
  • Distinguish between stable and unstable equilibria and identify instances of such equilibria.
  • Calculate and interpret individual and aggregate demand and inverse demand and supply functions, and interpret individual and aggregate demand and supply curves.
  • Calculate and interpret the amount of excess demand or excess supply associated with a nonequilibrium price.
  • Describe the types of auctions and calculate the winning price(s) of an auction.
  • Calculate and interpret consumer surplus, producer surplus, and total surplus.
  • Analyze the effects of government regulation and intervention on demand and supply.
  • Forecast the effect of the introduction and the removal of a market interference (e.g., a price floor or ceiling) on price and quantity.
  • Calculate and interpret price, income, and cross-price elasticities of demand, and describe factors that affect each measure.

  1. INTRODUCTION

  In a general sense, economics is the study of production, distribution, and consumption and can be divided into two broad areas of study: macroeconomics and microeconomics. Macroeconomics deals with aggregate economic quantities, such as national output and national income. Macroeconomics has its roots in microeconomics

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