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Conversely, if the price of steel decreases, producing a car becomes less expensive. At any given price for selling cars, car manufacturers can now expect to earn higher profits, so they will supply a higher quantity. The shift of supply to the right, from S 0 to S 2 , means that at all prices, the quantity supplied has increased. In this example, at a price of $20,000, the quantity supplied increases from 18 million on the original supply curve (S 0 ) to 19.8 million on the supply curve S 2 , which is labeled M.

Other factors that affect supply

In the example above, we saw that changes in the prices of inputs in the production process will affect the cost of production and thus the supply. Several other things affect the cost of production, too, such as changes in weather or other natural conditions, new technologies for production, and some government policies.

The cost of production for many agricultural products will be affected by changes in natural conditions. For example, in 2014 the Manchurian Plain in Northeastern China, which produces most of the country's wheat, corn, and soybeans, experienced its most severe drought in 50 years. A drought decreases the supply of agricultural products, which means that at any given price, a lower quantity will be supplied; conversely, especially good weather would shift the supply curve to the right.

When a firm discovers a new technology that allows the firm to produce at a lower cost, the supply curve will shift to the right, as well. For instance, in the 1960s a major scientific effort nicknamed the Green Revolution focused on breeding improved seeds for basic crops like wheat and rice. By the early 1990s, more than two-thirds of the wheat and rice in low-income countries around the world was grown with these Green Revolution seeds—and the harvest was twice as high per acre. A technological improvement that reduces costs of production will shift supply to the right, so that a greater quantity will be produced at any given price.

Government policies can affect the cost of production and the supply curve through taxes, regulations, and subsidies. For example, the U.S. government imposes a tax on alcoholic beverages that collects about $8 billion per year from producers. Taxes are treated as costs by businesses. Higher costs decrease supply for the reasons discussed above. Other examples of policy that can affect cost are the wide array of government regulations that require firms to spend money to provide a cleaner environment or a safer workplace; complying with regulations increases costs.

A government subsidy, on the other hand, is the opposite of a tax. A subsidy occurs when the government pays a firm directly or reduces the firm’s taxes if the firm carries out certain actions. From the firm’s perspective, taxes or regulations are an additional cost of production that shifts supply to the left, leading the firm to produce a lower quantity at every given price. Government subsidies reduce the cost of production and increase supply at every given price, shifting supply to the right. The following Work It Out feature shows how this shift happens.

Questions & Answers

can someone explain cardinal and ordinal utility for me please?
faith Reply
sir please explain industrial economist and its important
Priya
Please how can someone maximise profit in business?
Esther
how to calculate profit maximization
Daudi Reply
what is fiscal policy
Adewale Reply
it is the government policy in which uses expenditures and taxes to regurate the economy by applying either contractionary or expansionary FISCAL policy
Marcus
Hello. Please explain shortly
nourhan Reply
what happens when maximum price is placed above equilibrium price
Christian Reply
the demand curve falls
Ewerton
there will be excess supply
Emmanuel
explain the term : law of demand and it's function
Evacon Reply
law of demand state that the higher the price the lower the quantity demanded and vice versa
Moka
Está correto, sua função também é a de estabilizar o mercado do produto em questão, seu preço, sua produção, etc.
Ewerton
higher******
Umar
what are raw materials
Fatmah Reply
the basic material from which a product is made. "these could be used as raw material"
ADAMU
fatmah raw material, also known as a feedstock, oky is a basic material that is used to produce goods, finished products, energy, or intermediate materials that are feedstock for future finished products. just to make outputs.
ADAMU
oh yeah I got it .. thank you for your help 😊
Fatmah
hello my dear friends
Au
hello
Fatmah
hello
Muhammad
hy
Sortema
Any notes on ppf.?
George
can anyone clarify features of internal efficiency with reference to education
Sortema
raw material can also be said to be organic materials that haven't gone through any form of processing.
faith
in an open economy, the GDP is measured as ?
jacobs Reply
what is Labour of supply.
Eshmel Reply
it is called supply of labour
Emmanuel
it is the total number of those the producer is expected to employ at a given time and at an existing wage rate
Emmanuel
it is a sum number of employees the manufacturer wish to employ in a period of time , and at a given wage rate
Evacon
if the price of yam increases what will happen to demand curve?
Lawal Reply
the demand curve will decrease
Fatmah
with table and diagrametic illustration
Usama Reply
ok
Mustafe
if the price elasticity of demand for a commodity is zero the demand curve is
Aryan Reply
the demand curve is inelastic
Emmanuel
this is because price bring about a lesser change in quantity demanded
Emmanuel
how are we going to draw scale of preference
Achor Reply
how do we identify choice
Achor
how do we identify opportunity cost
Achor
opportunity cost is the forgone alternative. in oder words, it is the sacrificed goods or service for another. thus, the item you did not buy with the resources you have thereby buying another one is called opportunity cost. thanks
John
Opportunity cost considers only the next best alternative to an action, not the entire set of alternatives, and takes into account all of the differences between the two choices.
ADAMU
IAC curve is geueraly
Subham Reply
what are the benefits or tourism?
Maake Reply

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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