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How production costs affect supply

A supply curve shows how quantity supplied will change as the price rises and falls, assuming ceteris paribus so that no other economically relevant factors are changing. If other factors relevant to supply do change, then the entire supply curve will shift. Just as a shift in demand is represented by a change in the quantity demanded at every price, a shift in supply    means a change in the quantity supplied at every price.

In thinking about the factors that affect supply, remember what motivates firms: profits, which are the difference between revenues and costs. Goods and services are produced using combinations of labor, materials, and machinery, or what we call inputs    or factors of production    . If a firm faces lower costs of production, while the prices for the good or service the firm produces remain unchanged, a firm’s profits go up. When a firm’s profits increase, it is more motivated to produce output, since the more it produces the more profit it will earn. So, when costs of production fall, a firm will tend to supply a larger quantity at any given price for its output. This can be shown by the supply curve shifting to the right.

Take, for example, a messenger company that delivers packages around a city. The company may find that buying gasoline is one of its main costs. If the price of gasoline falls, then the company will find it can deliver messages more cheaply than before. Since lower costs correspond to higher profits, the messenger company may now supply more of its services at any given price. For example, given the lower gasoline prices, the company can now serve a greater area, and increase its supply.

Conversely, if a firm faces higher costs of production, then it will earn lower profits at any given selling price for its products. As a result, a higher cost of production typically causes a firm to supply a smaller quantity at any given price. In this case, the supply curve shifts to the left.

Consider the supply for cars, shown by curve S 0 in [link] . Point J indicates that if the price is $20,000, the quantity supplied will be 18 million cars. If the price rises to $22,000 per car, ceteris paribus, the quantity supplied will rise to 20 million cars, as point K on the S 0 curve shows. The same information can be shown in table form, as in [link] .

Shifts in supply: a car example

The graph shows supply curve S sub 0 as the original supply curve. Supply curve S sub 1 represents a shift based on decreased supply. Supply curve S sub 2 represents a shift based on increased supply.
Decreased supply means that at every given price, the quantity supplied is lower, so that the supply curve shifts to the left, from S 0 to S 1 . Increased supply means that at every given price, the quantity supplied is higher, so that the supply curve shifts to the right, from S 0 to S 2 .
Price and shifts in supply: a car example
Price Decrease to S 1 Original Quantity Supplied S 0 Increase to S 2
$16,000 10.5 million 12.0 million 13.2 million
$18,000 13.5 million 15.0 million 16.5 million
$20,000 16.5 million 18.0 million 19.8 million
$22,000 18.5 million 20.0 million 22.0 million
$24,000 19.5 million 21.0 million 23.1 million
$26,000 20.5 million 22.0 million 24.2 million

Now, imagine that the price of steel, an important ingredient in manufacturing cars, rises, so that producing a car has become more expensive. At any given price for selling cars, car manufacturers will react by supplying a lower quantity. This can be shown graphically as a leftward shift of supply, from S 0 to S 1 , which indicates that at any given price, the quantity supplied decreases. In this example, at a price of $20,000, the quantity supplied decreases from 18 million on the original supply curve (S 0 ) to 16.5 million on the supply curve S 1 , which is labeled as point L.

Questions & Answers

find the 15th term of the geometric sequince whose first is 18 and last term of 387
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salma
The given of f(x=x-2. then what is the value of this f(3) 5f(x+1)
virgelyn Reply
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Abhi
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ninjadapaul
20/(×-6^2)
Salomon
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it think it's written 20/(X-6)^2 so it's 20 divided by X-6 squared
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I got X =-6
Salomon
ok. so take the square root of both sides, now you have plus or minus the square root of 20= x-6
ninjadapaul
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ninjadapaul
so you not have an equal sign anywhere in the original equation?
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Commplementary angles
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or infinite solutions?
Kim
The answer is neither. The function, 2 = 0 cannot exist. Hence, the function is undefined.
Al
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Differences Between Laspeyres and Paasche Indices
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. After 3 months on a diet, Lisa had lost 12% of her original weight. She lost 21 pounds. What was Lisa's original weight?
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I start with an easy one. carbon nanotubes woven into a long filament like a string
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what is system testing?
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preparation of nanomaterial
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Yes, Nanotechnology has a very fast field of applications and their is always something new to do with it...
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AMJAD
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AMJAD
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Stotaw
In this morden time nanotechnology used in many field . 1-Electronics-manufacturad IC ,RAM,MRAM,solar panel etc 2-Helth and Medical-Nanomedicine,Drug Dilivery for cancer treatment etc 3- Atomobile -MEMS, Coating on car etc. and may other field for details you can check at Google
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silver nanoparticles could handle the job?
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I'm interested in Nanotube
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Prasenjit Reply
At high concentrations (>0.01 M), the relation between absorptivity coefficient and absorbance is no longer linear. This is due to the electrostatic interactions between the quantum dots in close proximity. If the concentration of the solution is high, another effect that is seen is the scattering of light from the large number of quantum dots. This assumption only works at low concentrations of the analyte. Presence of stray light.
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the Beer law works very well for dilute solutions but fails for very high concentrations. why?
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how did you get the value of 2000N.What calculations are needed to arrive at it
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Source:  OpenStax, Principles of macroeconomics. OpenStax CNX. Jan 09, 2015 Download for free at http://legacy.cnx.org/content/col11750/1.2
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