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Changes in Supply

Changes in Supply. In this lesson, students will identify factors that affect supply. Students will be able to define and/or identify the following terms: Subsidy Excise Tax Regulation. The cost of cheese affects the supply of pizzas. Change in the Cost of Inputs.

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Changes in Supply

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  1. Changes in Supply In this lesson, students will identify factors that affect supply. Students will be able to define and/or identify the following terms: Subsidy Excise Tax Regulation E. Napp

  2. The cost of cheese affects the supply of pizzas. E. Napp

  3. Change in the Cost of Inputs • Any change in the cost of an input will affect supply. An example of an input is a raw material. • A RISE IN THE COST OF AN INPUT WILL AFFECT SUPPLY AT ALL PRICE LEVELS BECAUSE THE GOOD HAS BECOME MORE EXPENSIVE TO PRODUCE. • Conversely, a fall in the cost of an input will cause an increase in supply at all price levels. E. Napp

  4. Government policies can also affect supply. E. Napp

  5. A Subsidy • A SUBSIDY IS A GOVERNMENT PAYMENT THAT SUPPORTS A BUSINESS OR A MARKET. • SUBSIDIES INCREASE SUPPLY BECAUSE SUBSIDIES INCREASE SUPPLIER’S PROFITS. • Typically, the government provides subsidies to farmers. A farmer profits from the subsidy as well as the sale. E. Napp

  6. Farmers receive government subsidies because farm products are cheap. Farmers would go out of business without subsidies. E. Napp

  7. Excise Tax • AN EXCISE TAX IS A TAX ON SALE OF SPECIFIC GOODS • AN EXCISE TAX REDUCES SUPPLY BY MAKING ITEMS MORE EXPENSIVE AT ALL QUANTITIES • Tax mainly on harmful products. • Examples? E. Napp

  8. The government places an excise tax on cigarettes to discourage consumption of this harmful product. E. Napp

  9. Regulation • REGULATION IS A GOVERNMENT INTERVENTION IN THE MARKET THAT AFFECTS THE PRICE, QUANTITY, AND QUALITY OF A GOOD • An example of regulation is requiring car manufacturers to install pollution reducing devices on cars. • Regulation can reduce supply. E. Napp

  10. Government regulations require car manufacturers to install pollution reducing devices. E. Napp

  11. Shifts in Supply Curves • NUMBER OF PRODUCERS: NEW PRODUCERS INCREASE SUPPLY • Competition can eliminate producers • PRODUCER EXPECTATIONS: FUTURE PRICES CAN CHANGE CURRENT PRODUCTION • Change to take advantage of future prices Helf

  12. Shifts in Supply Curves • INCREASES IN PRODUCTIVITY: • TECHNOLOGY- CHEAPER, FASTER METHODS • Think robots and computers • LABOR- BETTER TRAINED, FASTER • Investing in “human capital” • DECREASES IN PRODUCTIVITY: • More regulation> longer processes Helf

  13. Excise taxes affect supply. E. Napp

  14. When a supply curve shifts to the left, supply is reduced at all price levels. E. Napp

  15. When the supply curve shifts to the right, supply is increased at all price levels. E. Napp

  16. Questions for Reflection: • Why does the government place excise taxes on products and how do excise taxes affect supply? • Why does the government provide subsidies to some industries and how do subsidies affect supply? • How does regulation affect supply? • Why does a rise in the cost of an input affect supply? E. Napp

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