Changes in Supply

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

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

4
Government policies can also affect supply.
5
A Subsidy

• A subsidy is a government payment that supports a
  business or a market.
• Subsidies increase supply because subsidies
  increase suppliers profits.
• Typically, the government provides subsidies to
  farmers. A farmer profits from the subsidy as
  well as the sale.

6
Farmers receive government subsidies because farm
products are cheap. Farmers would go out of
business without subsidies.
7
Excise Tax

• An excise tax is a government tax on the
  production or sale of a good.
• The government places excise taxes on harmful or
  dangerous products.
• The excise tax on cigarettes reduces supply.

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

10
Government regulations require car manufacturers
to install pollution reducing devices.
11
Shifts in Supply Curves

• If the supply curve shifts left, fewer goods will
  be supplied at all price levels.
• If a supply curve shifts right, more goods will
  be supplied at all price levels.
• Excise taxes shift a supply curve to the left
  while subsidies shift a supply curve to the right.

12
Excise taxes affect supply.
13
When a supply curve shifts to the left, supply is
reduced at all price levels.
14
When the supply curve shifts to the right, supply
is increased at all price levels.
15
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?