Lecture Notes: Shifting the Supply Curve

Introduction

• Supply Curve Basics: Fundamental understanding of how supply curve shifts based on various factors.
• Main Supply Shifters:
  • Changes in costs
  • Technological innovations
  • Input prices
  • Taxes and subsidies
  • Expectations
  • Entry or exit of producers

Technological Innovations

• Effect: Lowers costs, increases supply.
  • Example: Genetically modified seeds reduce fertilizer needs.
• Graphical Shift: Supply curve moves down and to the right.
  • Sellers supply more at a lower price.

Input Prices

• Increase in Input Prices: Raises costs, decreases supply.
  • Example: Stricter gasoline regulations.
• Graphical Shift: Supply curve moves up and to the left.
  • Firms need a higher price to supply the same quantity.

Taxes and Subsidies

• Taxes:
  • Increase costs, decrease supply.
  • Supply curve shifts up by the tax amount.
  • Example: $10 tax on oil increases minimum selling price by $10.
• Subsidies:
  • Decrease costs, increase supply.
  • Graphically opposite effect to taxes.

Expectations

• Future Price Increase Expectation: Increases current opportunity costs, decreases current supply.
  • Example: Firms store goods anticipating higher future prices.
• Effect: Reduces current market supply as firms hold back goods.

Entry and Exit of Producers

• Entry: More sellers, increased supply.
• Exit: Fewer sellers, decreased supply.
• Example: Free trade with Canada increases lumber supply at each price point.

Opportunity Cost

• Concept: Inputs have alternative uses leading to opportunity costs.
  • Example: Land can grow soybeans or wheat.
• Price Rise in Alternatives: Increases opportunity cost of growing current crop.
  • Leads to decreased supply of original crop at the same price point.

Conclusion

• General Process: Determine effect on costs to predict supply curve shifts.
  • Decreased costs = Increased supply
  • Increased costs = Decreased supply
• Tip: Understand cost effects to apply correct supply curve shift.

• Next Steps: Practice questions or proceed to the next video on equilibrium.