Supply+include+what+is+a+supply+curve+and+what+shifts+a+supply+curve

=Supply=

By Troy Deppert

The American Heritage Dictionary defines supply as: "v. //tr.//=
 * 1) To make available for use; provide.
 * 2) To furnish or equip with: //supplied sheets for every bed.//
 * 3) To fill sufficiently; satisfy: //supply a need.//
 * 4) To make up for (a deficiency, for example); compensate for.
 * 5) To serve temporarily as a substitute in (a church, for example). "[|1]

In Economic terms, Supply is the output of a company that provides a product or service to the market for consumption. The law of supply states "as the price of a good or service rises (falls) and other factors remain constant, the quantity supplied of the good or service rises (falls)" (Bayer, 2006). An increase in price is not an increase in supply, it is more accurately called an increase in the quantity supplied.

=Supply curve=

A supply curve is 1/2 of the supply and demand graph (see Supply and Demand) that represents the price paid by a consumer in a competitive market (for an explanation on demand see definition of demand). Figure 1 is an example of a supply curve with the X-axis being the quantity supplied and the Y-axis being the price of the good or service. As shown in Figure 1, supply is an upward sloping curve showing that as the price increases, a supplier will increase the amount supplied.



The supply curve shows that only a change in price will cause movement along the curve. Other factors that could affect supply are held constant. The other factors would cause a shift in the supply curve on the graph. This is explained in more detail in the next section, **"Shifts in the Supply Curve"**.

=Shifts in the Supply Curve=

Outside of price, there are influences to the supply curve that can cause the entire line to change position, basically it will change the quantity supplied at every price level. A rightward shift in the supply curve is indicated that a greater quantity supplied at each price. Figure 2 shows an example of a rightward shift, this is called an increase in supply. An opposite shift demonstrates an example of a leftward shift in supply. In this case of the quantity supplied is decreased at every price, which is also called a decrease in supply.



A list of factors other than price that can shift the supply curve and either increase or decrease supply are Input Prices, Technology, Government Regulations, Competition in the Market, Production Substitutes, Taxes, and Producer Expectations. Each factor could either increase (rightward shift) or decrease (leftward shift) the supply curve depending on a positive or negative change in the variable. Next each variable will be defined along with the factors that can cause an increase or decrease in supply.

Input Prices
Producers are willing to sell varying amounts products at different prices. When the costs of producing or providing a service changes, this will change the amount the supplier is willing to accept for the product. Simply put when the input to production increases, the supply curve will shift to the left to reflect the increase in prices to offset the increased costs. A decrease in input prices would cause an increase in supply (rightward shift).

Technology
While technology is usually perceived as a variable that would cause a rightward shift in the supply curve, due to an ability to increase supply at lower prices. If a natural disaster happens, technology (i.e. power, phone, etc.) can fail. This will cause supply to shift to the left as the lack of technology would limit supply of food and other perishable items and increase the price for each quantity supplied.

Government Regulations
Governments can influence market supply and shift the curve to the right or left depending upon their actions. Treaties such as GATT and NAFTA have freed up trade restrictions and made more items available for trade. This is a rightward shift in the supply curve and would increase supply. If a government becomes protectionist, it does have the ability to impose tariffs on imports or caps in production which would cause leftward shift and decrease supply.

Competition in the Market
The number of firms in the market can affect the level of supply at different prices. Basically, the more firms entering a market would cause an increase in supply. At times when a market can become saturated, companies would leave the market thus decreasing supply of products. This would cause the supply curve to shift leftward.

Production Substitutes
Many times companies have the ability to use existing methodology or technology to produce other items or provide similar services. A call center that provides services for computer support could be trained to take calls for other products, such as printers, to provide support. If a customer needs increased support in computers, people supporting printers can be reassigned to assist. This would shift the supply curve to the left for the printer support since that supply will be decreased.

Taxes
Taxes have the effect of shifting the supply curve to the left (decrease supply). The first tax is an excise tax. This tax is levied at the point of sale. This will cause the supply curve to shift upward by the amount of the tax. An example of this type of tax would be 'sin tax' on tobacco. If the state government requires a $.75 tax on cigarettes, the price of cigarettes is exactly $.75 higher along the curve at each quantity supplied. Another tax would be an //ad valorem// //tax//. Ad valorem translates from Latin to "by value". A sales tax is the prime example of an ad valorem tax. The change of the curve is a rotation to the left instead of a shift since the price changes by a percentage at each quantity.

Producer Expectations
If a producer of a product has an expectation that prices could decrease in the foreseeable future due to new firms entering the market, they may increase production to sell as much as possible at the current price. This would shift the supply curve to the right increasing the supply in the market at each price. This strategy is to maximize revenues before the price decreases. If the producer has the reverse expectation, they would decrease production thus shifting the curve to the left.

Questions
1. Which of the following would not cause a shift in the supply curve? a. Due to the success of cellular phones accessing the Internet, five new companies will be entering the market in the next three months. b. Government regulations have just increased the price of a precious metal needed to manufacture computer chips for a computer manufacturer. c. Grocery stores anticipate that recent bad weather will drive up the price of corn and start purchasing more to increase stock. d. A company has changed its supply chain approach reducing its overall cost by 10%.

//Answer c. - This is a consumer expectation, a demand shifter, and does not affect current production supply.//

2. Supply can best be defined as: a. Purchasing an item on sale at a discount store. b. Producing a widget to be used in a manufacturing plants. c. The point where the quantity supplied equals the quantity demanded on the Supply and Demand graph. d. The change in total cost to produce an item resulting from a change in production.

//Answer b. - Supply definition states that it is producing an item in a competitive market regardless of demand or cost.//

3. The supply curve can be shifted by the following except: a. A new tax is imposed on gasoline by the government to help improve the roads. b. A printer company will discontinue its deskjet line and will allocate the available resources to making laserjet printers. c. A new labor agreement is signed that will increase manufacturing workers pay by 4%. d. A company lowers the price on a good to attempt to gain market share.

//Answer d. - A change in price is movement along the supply curve while the others will cause a shift and change the entire curve.//

4. NAFTA and GATT are the best examples of what kind of supply shift? a. Government Regulations. b. Taxes. c. Competition in the Market. d. None of the above.

//Answer a. - Those are both examples of Government Regulations that change the supply curve for the North American markets.//

5. Which of the following would cause a leftward shift (decrease in supply) of a supply curve? a. A decrease in price on a product just before the Holiday season. b. A government regulation just made corn from Brazil available to U.S. cattle farmers. c. The price of gas has increased by 50% for a delivery firm with a fleet of trucks. d. The government repealed a tax on phone service lowering the amount collected on long distant calls.

//Answer c. - This is an increase in an input price which would shift the supply curve to the left. Answer a is just a change in price, b and d would both increase supply (rightward shift).//

**References**
Abowd, Prof. John M. (May 1999). Supply and Demand. Retrieved on 09/14/2007 from http://instruct1.cit.cornell.edu/courses/econ101-dl/lecture-supply&demand.html

Arndt, Sven W., (2000). Regional Enterprise in Preference Areas. The Lowe Institute of Political Economy. Claremont McKenna College. Retreived on 09/13/2007 from http://www.claremontmckenna.edu/lowe/pdf/WP01-02.pdf

Bayer, Michael R. 2006. //Managerial Economics and Business Strategy.// 5th ed. McGraw-Hill Irwin. p. 46. ISBN 0-07-298389-2.

Investopedia.com (2007). Economic Basics: Demand and Supply. Retrieved on 09/12/2007 from http://www.investopedia.com/university/economics/economics3.asp

NetMBA.com. (2007). The Supply Curve. Retrieved on 09/14/2007 from http://www.netmba.com/econ/micro/supply/curve/

"supply." //The American Heritage® Dictionary of the English Language, Fourth Edition//. Houghton Mifflin Company, 2004. 18 Sep. 2007. .]