Supply represents the marginal cost of production it tells us the minimum cost of producing each unit of a good whether it's the first unit or the millionth unit and that minimum cost includes both explicit costs of production like the cost of inputs and implicit costs like other opportunities that is all we need to identify the determinants of supply costs are bad nobody likes costs including suppliers so when costs fall Supply increases Supply will increase when the price of inputs fall for example if wages paid to workers Falls or the cost of acquiring raw materials Falls or the rent paid on the land used Falls Supply will increase If the product becomes cheaper to produce then Supply increases and shifts to the right alternatively instead of making inputs cheaper we could instead find a way to use less of them that's an increase in productivity if we install new machines that can do the job of 10 old machines we have increased the productivity of the capital we are using if we identify a new way of mixing our ingredients that uses fewer of them to get the same result we have increased productivity and Supply will shift to the right don't forget opportunity costs though the supply of corn will increase if the price of soybeans Falls a lower price for soybeans means it isn't as attractive of an alternative to growing corn more farmers will choose to grow corn in the supply of corn will ship to the right and then just like the determinants of demand we have positive expectations less uncertainty and more producers when it comes to expectations for producers it's all about the price if we think the price of oil is going to Skyrocket next year oil producers might want to reduce their supply now and crank it up once the price goes up of course the degree to which they shift production Through Time depends on how much certainty they have over the future changes better knowledge and future conditions could alter a firm's opportunity cost and Shift Supply and of course more firms means more production at every price reverse any of these and you decrease Supply shifting it to the left let's try some examples the price of cars increases what happens to the supply of cars what's that did I hear you say it would increase wrong this is a trick question the price of cars is the reward for producing cars not the cost of producing them increasing the price does not increase the cost of production so there's no shift Instead This is really a question about the law of supply when we increase the price we increase the quantity supplied we move from one point on the supply curve to another point this is just like it was with demand a change in the price only changes the quantity but it doesn't shift the Curve here's another the price of electronic components needed to produce cars increases what happens to the supply of cars these electronic components are an input used to make cars and if the price of an input increases then the cost of production is increasing that will Shift Supply to the left which is a decrease in Supply you can see now firms are producing fewer cars at every possible price what happens to the supply of cars if the price of motorcycles Falls when I've asked students this in the past sometimes I get an answer that goes like this well if the price of motorcycles Falls people are going to buy more motorcycles which means they'll buy fewer cars and the supply of cars will go down is hard to break the habit of thinking about the whole Market at once yes if the price of motorcycles Falls people will buy more motorcycles but changes in consumer Behavior do not shift Supply they shift demand perhaps the demand for cars will fall but that tells us nothing about Supply instead we need to think about the costs of production and that includes opportunity costs Honda makes both motorcycles and cars if the price of motorcycles Falls they'll have an incentive to shift some of their resources away from producing motorcycles towards producing cars and that is just one company a lower price earned by producing motorcycles means the opportunity cost of making cars will also go down for some car companies and those lower opportunity costs mean the supply for cars will increase and shift to the right what if the price of cars is expected to rise next year what happens to the supply of cars didn't we do this one a change in the price of cars doesn't shift the supply curve right yes but this isn't a change in the price it's a change in the future price one alternative to selling cars today is selling cars tomorrow the future price could be an opportunity cost why sell a car Dirt Cheap today when you can sell it at a premium tomorrow a higher future price encourages producers to hold off on current production in favor of future production and so the current supply of cars will decrease and shift to the left what if there was a ban on foreign made cars that's lifted what will happen to the supply of cars this change doesn't impact the cost of production it's just a change in the law but it is allowing more producers to jump into the market when the number of suppliers increases that also increases Supply and shifts it to the right okay last one Facebook reduces the productivity of Auto Workers what happens to the supply of cars Facebook is perhaps a distraction for these Auto Workers and so a worker is getting less work done per day as a result that means if we hire the same number of workers as before our output will be lower than it used to be that is the equivalent of an increase in costs lower productivity of any input will result in a decrease in Supply which means a shift to the left your key takeaway when thinking about when Supply shifts is that Supply represents the marginal cost of production when marginal costs change so does Supply