Supply+(include+what+is+a+supply+curve+and+what+shifts+a+supply+curve)


 * Supply (what is supply curve and what shifts supply curve)**

Michelle Bennett Abel Ernstberger Charles McPherson

A supply curve shows what quantity the existing or potential suppliers of a product are willing to produce at each price. Suppliers are generally willing to supply more of a good at higher prices causing the supply curve to be upward sloping. There are two types of causes that may change the quantity supplied. These changes are represented by either a movement along the supply curve or as a shift of the supply curve.

A movement along the supply curve occurs when a change in the price of a good demanded changes the quantity demanded. Pictorially, this is just a moving from one spot on an existing supply curve to another spot on the same supply curve. See graph below. Moving from the dot at a quantity of 20 to a quantity of 30 is a movement along a supply curve.
 * __MOVEMENTS ALONG SUPPLY CURVE__**



A shift of the supply curve will occur when a change in a variable, other than that of the product, affects the supply curve. Pictorially, the supply curve will either shift to the right when demand increases or to the left when demand decreases. See the graph below for an example of how a supply curve can shift.
 * __SUPPLY SHIFTERS__**



Some of the items that can affect a supply shift are prices of inputs, technology, government regulations, number of firms in the market, number of substitutes available, price of substitutes, taxes, and producer expectations.

An example of an input price supply shifter would be as follows: A market that produces shirts experiences an increase in the cost of thread that goes into the production process. The firms are willing to produce less at the same price since it is costing them more money to make the shirt. Therefore, the supply curve shifts to the left decreasing the quantity supplied at the same price.

An example of a technology or government regulation supply shifter would be as follows: The US Government has imposed a restriction on the amount of labor that can be sent to Mexico. Labor is cheaper in Mexico than in the United States. A company that produces jeans has previously used Mexico for 3/4 of their labor. This company must now bring more of their labor into the United States and has to pay higher wages. Therefore, the cost of the product supplied increases and the supply curve shifts to the left since they will decrease the quantity supplied at all of the same prices.

An example of a number of firms supply shifter would be as follows: In a market that makes coffee, the barriers to entry are low and the existing firm's are making a profit. Therefore, other firms decide to enter this business. This increases the amount supplied at all prices, so the supply curve shifts to the right.

An example of a substitute good as a production supply shifter would be as follows: A market that produces dresses experiences a decline in the sale of dresses. However, their plants can be used to also produce pants. Therefore, they switch from producing dresses to pants. The supply of dresses shifts left and the supply of pants shifts to the right.

An example of a taxes supply shifter would be as follows: The government imposes an excise tax of $0.25 per pack of cigarettes. Firms collect excise taxes and remit them to the government. Therefore, it is now more expensive for suppliers to produce cigarettes. Therefore, the supply curve shifts to the left since they are no longer willing to supply the same amount at the same prices.

An example of a producer expectations supply shifter would as follows: Company XYZ expects the price of paper to decrease in the one month. Therefore, they decide to decrease production of books today and increase production of books in one month when the price has decreased for their input of paper. Therefore, the current supply curve shifts to the left and the future supply curve shifts to the right.


 * __SUPPLY FUNCTION__**

The supply function of a good is given by Qx = f(Px, Pr, W, H). Px is the price of the good. Pr is the price of technologically related goods. W is the price of an input. H is the value of some other variable that affects supply.

Linear supply function is written as follows: Qx = Bo + BxPx + BrPr + BwW + BhH

If numbers are given for all variables, then the quantity supplied can be found by plugging those numbers into the equation. The inverse supply function is calculated by using algebra to move the Px to the left side of the equation instead of the Qx.

See the following sources for more information on supply and supply shifters: http://www.staff.ncl.ac.uk/david.harvey/AEF116/REVISION/DSS.html http://faculty.winthrop.edu/stonebrakerr/book/Demand_and_supply.htm

Questions:

1) If the number of firms in an industry increase, what would happen to the supply curve? (See below for answer.) a. There would be an increase in the quantity supplied. b. The supply curve would shift to the left. c. The supply curve would shift to the right. d. There would be a decrease in the quantity supplied.

2) The following supply function is given for the number of tickets that will be sold for a football game. Qx = 10,000 + Px - 20Pp. The price of the football tickets or Px is given by $200. The price of paper or Pp is given by $1.00. What is the quantity of tickets supplied? a. 6,001 b. 10,180 c. 10,000 d. 180

3) A Farmer is in the wheat industry. Recently a new technology has devloped that reduces the cost of growing wheat. What happens as a result of this new technology? a. The supply curve shifts to the left. b. The demand for wheat increases. c. The demand curve shifts right. d. The supply curve shifts to the right.

The new technology increases the profitability, and therefore the willingness to sell //at every price.// Therefore the supply curve shifts to the right.
 * 1) 3 Explanation:

4) The Peruvian anchovies are in trouble. The warm South American wind, El Nino, is making the normally icy Humboldt current off the coast of Peru too warm for the silvery fish and they're moving out. How does this effect the supply of Anchovies from Peru? a) Decrease in supply, shifting the curve to the left. b) Increase in supply, shifting the curve to the right. c) Movement up the supply curve, increasing price and quantity d) Movement down the supply curve, decreasing price and quantity

El Nino's influence essentially makes it more expensive to catch anchovies, because boats have to travel farther and anchovy fishermen have to work longer to catch any given quantity of anchovies. In This translates into a decrease in supply, a shortage at the old equilibrium price, and an increase in the equilibrium price.
 * 1) 4 Explanation:

5) Vacation season is approaching and many people will travel to their destinations primarily by automobile or by aircraft. For vacation travelers, automobiles and airlines are substitute products. In the short run, if the price of gasoline were to increase by 50%, with all other factors held constant, the following change would be seen by the airline industry: a) The supply of air travel would increase by 50%. b) The quantity supplied of air travel would increase by 50%. c) The supply of air travel would increase by an unknown value. d) The quantity supplied of air travel would increase by an unknown value.

The airline industry is not directly affected by the price of gasoline. With all other factors held constant, a movement along the supply curve would be seen. The quantity of passengers served would increase by an unknown amount. (d)
 * 1) 5 Explanation:

6) For many people, Coke and Pepsi are substitute products. If Pepsi were to change their pricing strategy and reduce their price by 10%, ceteris parabus, the following change would occur: a) The supply curve for Pepsi would shift to the left. b) The supply curve for Pepsi would shift to the right. c) The demand curve for Pepsi would shift to the left. d) The demand curve for Pepsi would shift to the right.

At each potential price, Pepsi has made available an increased quantity of product. By increasing supply, the supply curve has been shifted to the right. (b)
 * 1) 6 Explanation

7) For many people, Coke and Pepsi are substitute products. If Pepsi were to change their pricing strategy and reduce their price by 10%, ceteris parabus, the following change would occur: a) The supply curve for Coke would shift to the left. b) The supply curve for Coke would shift to the right. c) The demand curve for Coke would shift to the left. d) The demand curve for Coke would shift to the right.

For Coke, the quantity demanded would be less at each price. The demand curve would shift to the left. (c)
 * 1) 7 Explanation

8) The French bottled water, la pew, has been found to contain traces of heavy metals (a bad thing). This news was released the same day that their second bottling plant came on-line and began production (increasing the supply of the product). What will be the effect on price and quantity supplied? a) The price is unknown. The quantity will increase. b) The price will increase. The quantity is unknown. c) The price will decrease. The quantity is unknown. d) The price is unknown. The quantity will decrease.

The demand will decrease as a result of new health concerns. With a decrease in demand and an increase in supply, the effect on quantity may go either way. (c)
 * 1) 8 Explanation

Answer: 1) C 2) B 3) D 4) A 5) D 6) B 7) C 8) C