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Supply

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Law of Supply:

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There is a positive relationship between the price of a good and the quantity supplied

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What Happens to Your Supply of Labor as the Wage Decreases?

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An Upward Sloping Supply Curve Indicates That:

Resources used are not all identical and have different alternative use values.

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Shifts in Supply

Increase in Supply

Decrease in Supply

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What are the Determinants of Supply?

  • Change in technology
  • Changes in input prices
  • Taxes and Subsidies
  • Expectations
  • Entry or exit of producers
  • Seller’s willingness to produce

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Change in Technology

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S

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Change in Input Prices

What happens to the supply of actors for a famous television when a crew of primarily previously unknown actors and actresses suddenly becomes famous and then demand much higher wages?

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Q

S’

S

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What happens to the supply of Laphroaig if Maker’s Mark drastically increases its production (Maker’s Mark barrels are used in the production of Laphroaig)

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S’

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Taxes or Subsidies

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Change in Expectations

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Entry or Exit of Producers

S1 to S2 represents the entry of producers. S2 to S1 represents the exit of producers.

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Free global trade would tend to push the supply curve to be horizontal.

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Baby Formula Shortage of 2022

  • Lack of substitutes
    • Naturally, but also due to strict import restrictions due to tariffs and stringent FDA rules
  • Supply chain issues
  • Abbott Labs, one of the three major producers in the U.S., shut down its production due to contamination.

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EpiPen Price Hike (400%)

  • Lack of substitutes
    • Patent law protection to 2025 so no generic versions allowed except for by producer of EpiPens
    • FDA approval for a competitor products takes years and millions of dollars.

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Willingness to Produce or Sell