Supply

AS Economics

Aims and Objectives

Aim: Understand how supply curves shift.

Level

Objectives:
Define supply Draw an increase and decrease in supply

E-D C-B

B-A

Analyse the factors influencing supply

Starter
Draw a supply curve. On your diagram show an extension and contraction in demand.

Increases & Decreases in Supply: Shifts

Price

S2

S1
Shifts in supply related to mainly to changes in costs, not concerned with a price fall.

Q2

Q1 Qty Demanded

Factors Shifting Demand

In groups brainstorm all of the factors that will either increase or decrease supply.

Supply Determinants

Raw material price changes No. of sellers Technology improvements

Objectives

Supply Determinants

Increase in labour productivity

Expectations

Regulation

Subsidies

Wage rates

1) Changes to Raw Material Prices

If RM prices rise, costs rise, meaning if the firm continues to supply at the same price level, less profit will be made. No incentive, supply curve shifts left. http://www.bbc.co.uk/news/world-uscanada-13306796 http://www.bbc.co.uk/news/business13331030

1) Changes to Raw Material Prices

2) Technology Improvements
If there are improvements in technology, the costs of production may fall. Creating an incentive to produce more, to make more profit. Shifting supply curve right.

3) Increases in Labour Productivity

If the output per worker increases then the costs of manufacture will fall. The supply curve will shift right.

4) Regulation
Regulation imposed by governments can add to costs, such as required investment or the imposition of new methods. E.g. the amount firms can pollute is regulated with pollution permits. http://news.bbc.co.uk/1/hi/business/8413672.stm Do you think pollution permits will effectively reduce supply?

4) Regulation
Should we regulate the media more? Do we want to reduce supply through regulation? What could we do? http://www.bbc.co.uk/ news/uk-12291256

5) Wage Rates
If wage rates rise, then the supply curve will shift left as the costs of production will increase, possible forcing inefficient firms out of the market.

6) Subsidies
Payments made by the government to a firm to promote and encourage production. What kind of firms may a government subsidise? Aim of reducing costs and shifting supply right. http://www.bbc.co.uk/news /uk-england-16875974 Should the government subsidise solar panels?

7) Expectations
If we expect prices to fall in the next month, we may try to sell now to profit maximise! If we expect prices to rise in the next month we may hold off and reduce supply. E.g. housing market

8) Objectives of Firms
Most firms aim to profit maximise in short run. Some may aim to increase market share, or sell more output. In the latter cases they may attempt to increase supply at the current price.

8) Objectives of Firms
Most firms aim to profit maximise in short run. Some may aim to increase market share, or sell more output. In the latter cases they may attempt to increase supply at the current price.

9) Number of Sellers
If more firms enter a market, the supply will shift to the right and increase.

Joint Supply
When the production of one good also results in the production of another. E.g. When there is an increase in demand for beef, there is an increase in the supply of it, which also increases the supply of leather

Plenary
Show on a diagram and briefly explain the effect on supply of hotel and restaurant services of the rise in the minimum wage from 5.35ph to 5.80ph paid to employees such as waiters and bar staff.