Macroeconomics
The Determinants of Supply ● Costs ofProduction: Thepriceofthefactorsof production used to producegoodsandservices arecoststoproducers.Suchcosts,referredtoas production costs, mostlyincludewagesandthe prices of raw materials (e.g., oil, coal, plastic, lumber, etc.). Any change in them affects the producers’abilitytoproduceandhence,supply. An increase in the cost of production reduces supply (shifts the supply curve to the left), whereas a decrease in the cost of production raises supply (shifts the supply curve to the right).
● PriceofRelatedGoodsandServices: Producersmustbecontinuouslyawareofcompetitors.If a competitor lowers its price, a producer might lose consumers that choose thecompetitors’ productinstead.Thisreducesitssupplyandshiftsitssupplycurvetotheleft.Alternatively,ifa competitorincreasesitsprice,aproducermightbeabletoattractmoreconsumersifitcankeep its price unchanged. This increases its supply and shifts its supply curve to the right. ● Expectations: Whenproducersexpectanincreaseinthedemandforaproduct(e.g.,flowerson Mother’s Day), they increase their supply, shifting the supply curve to the right. Alternatively, whenproducersexpectadecreaseindemand(e.g.,skiequipmentduringsummer),theyreduce their supply, shifting the supply curve to the left.
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