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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

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The cost of cheese affects the supply ofpizzas.

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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.

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Government policies can also affect supply.

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A Subsidy

• A subsidy is a government payment that supports a business or a market.

• Subsidies increase supply because subsidies increase supplier’s profits.

• Typically, the government provides subsidies to farmers. A farmer profits from the subsidy as well as the sale.

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Farmers receive government subsidiesbecause farm products are cheap. Farmerswould go out of business without subsidies.

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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.

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The government places an excise taxon cigarettes to discourage consumption

of this harmful product.

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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.

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Government regulations require carmanufacturers to install pollution reducing

devices.

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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.

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Excise taxes affect supply.

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When a supply curve shifts to the left,supply is reduced at all price levels.

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When the supply curve shifts to the right,supply is increased at all price levels.

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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?