Americans In Action

As you've learned, consumers demand products and services at the lowest possible prices. In contrast, suppliers, like Wal-Mart, exist to make a profit. U.S. News & World Report discussed the actions other suppliers had to take to compete with Wal-Mart: -Retailers also have to keep prices low to compete against Wal-Mart, the world's biggest merchant. They make the supply chain so efficient that it cuts costs' says [economist Frank BadIIIo]. Last week, for example, Wal-Mart said it wouldn't use a particular Visa debit-card system because transaction fees had been increased. Wal-Mart passes on such savings to consumers, who then expect the same from the competition. So the likes of Target, Kmart, Sears, Kohls, and department stores duke it out to woo consumers."

Suppliers compete with one another for customers.

46G Chapter 21 Supply

Changes In Ifie Cost of Resources

Earlier* you learned how four resources, or factors of production, are used to produce goods and services. When these resource prices fall, sellers are willing and able to produce and offer to sell more of the good. The supply curve shifts to the right. The reason for this is that it is cheaper to produce the good.

When resource prices rise, sellers are less able to produce and sell the same quantities of the good. The supply curve shifts to the left, because it is more expensive to produce the good.


One way businesses can cut costs—and increase profits is by improving productivity. Productivity is the degree to which resources are being used efficiently to produce goods and services. Most of the news you will hear about productivity concerns labor. When workers are more efficient— when they produce more output in the same amount of time a company's costs go down. The result is that more products are produced at every price, which shifts the supply curve to the right. When productivity falls, it costs more for a company to produce the same amount of goods and services. In this case, the supply curve will shift to the left.


Costs are also affected by technology. Technology refers to the methods or processes used to make goods and services. New technology can speed up ways of doing things. At many stores, cashiers use scanners to register the prices of goods that customers arc buying. 'lTicsc scanners do more than speed up checkout. They also automatically track the number of units that the store has sold and how many are left on the shelf. As a result, store managers quickly know when they need to reorder a product. This is faster than having workers count all the goods on the store's shelves.

Technology often can cut a business's costs. 'Ehis pushes the supply curve to the right, showing that the business is willing to supply more at the same price.

Technology New computer technology has greatly increased productivity.

What effect does Improved technology usually have on supply?

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Original Curve



Curve uj $30

New Curvo


100 150 200 250 300 QUANTITY

A Change in Supply



Original Curve

50 100 150 200 250 300 QUANTITY

Analyzing Graph»



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New Curvo


100 150 200 250 300 QUANTITY

A change In supply means that a different quantity Is supplied art every price. What does a shift of the supply curve to the right show?

y en in changés in Government Policies

Actions by the government can affect supply as well. Suppose that die government passes a law requiring that fast-food restaurants pay all workers S10 an hour. The restaurants faced with higher labor costs—might then decide to lay off some workers. The fewer workers who remain would produce fewer hamburgers, resulting in a decrease in supply.

When the government establishes new regulations, the cost of pro due don can be affected, causing a change in supply. For example, when the government orders new safety features for automobiles, such as air bags or emissions controls, autos cost more to produce. Auto manufacturers adjust to the higher production costs by producing fewer cars at cacli and every* price in the market.

In general, increased or tighter government regulations restrict supply, causing the supply curve to shift to the left. Relaxed regulations allow producers to lower the cost of production^ which results in a shift of the supply curve to the right.

Changes in Taxes and Subsidies

Tax laws also affect businesses. To businesses, taxes are a cost. Higher taxes mean higher costs, pushing the supply curve to the left. Lower taxes—lower costs—move the supply curve to the right. This increases the amount of a good or service supplied at each and every price.

A subsidy is a government payment to an individual, business, or other group for certain actions. Suppose the government subsidizes the production of corn by paying farmers $2 for every bushel of corn. The subsidy lowers the cost of production and encourages current producers to remain in the market and new producers to enter. When subsidies arc repealed, costs go up, producers leave the market, and die supply curve shifts to the left.

Finally, the expectations of producers affect supply as well. If businesses believe that consumer demand will not be very high in the near future, they will produce less of their products. This cuts down on the supply. On the other hand, if they expect demand to go up, they will produce more at all possible prices. This is the reason that stores stock up on swim-suits as summer nears. They expect that consumers will want to buy more of these garments at that time of the year.

A change in the number of the suppliers causes a change in market supply. As more firms enter an industry, the supply curve shifts to the right. In other words, the larger the number of suppliers, the greater the market supply. If some suppliers leave chc market» supply decreases, shifting the curve to the left.

Elasticity of Supply

Like demand, supply can be clastic or inelastic. Supply elasticity is a measure of how the quantity supplied of a good or service changes in response to changes in price. If the quantity changes a great deal when prices go up or down, the product is said to be supply elastic. If the quantity changes very little, the supply is inelastic.

Supply elasticity depends on how quickly a company can change the amount of a product it makes in response to price changes. Oil is supply inelastic. When oil prices go up, oil companies cannot quickly find a new site with oil, dig a new well, build a pipeline to move the oil, and build a refinery to turn it into gasoline. 'JLTic same is true of other products that require producers to invest large sums of money in order to produce them.

The supply curve is likely to be elastic, however, for kites, candy, and other products that can be made quickly without huge amounts of capital and skilled labor. Tf consumers are willing to pay twice the price for any of these products.- most producers will be able to gear up quickly to increase production.


Checking for Understanding

1. Key Terms Write a paragraph about supply in which you use all at the fallowing terms:

productivity, technology, subsidy, supply elasticity.

Reviewing Main Ideas

2. Explain In which direclion does the supply curve shift when supply decreases? In which direction does Lhe supply curve shift when supply increases?

3. Explafn What determines whether a business's supply curve is elastic or inelastic? Is supply elastic or inelastic in a situation in which the price of books rises 10 percenl and Lhe quantity supplied rises 15 percent?

Critical Thinking

4. Making Generalizations Why does new technology shift the supply curve to the right?

5. Understanding Cause and Effect Complele a Lable like Lhe one below to explain how supply would bo affected would it increase or decrease in Lhese situations?


Cffcct on Supply

T>i« isosl o I <j prod net'5 basic r<jw rri<jlRri«jls goes down.

Government offc's tax incentives to your company.

6. Identify Describe what Lhe Lwo graphs on page 468 are showing. Which of the graphs moro accuraLely illusLraLes a siLuaLion in which the number of firms in an industry increases?


7. Analyze Contact the foreign language teachers in your school to see if Lhey have any adverLising material from other countries. Even without translating the Ian guage, can you understand Lhe purpose of the advertisement? Write several paragraphs describing how markeLing in other countries differs from our ads.

Using a Computerized Card Catalog

Why Learn This Skill?

Libraries contain an overwhelming amount of information. Going to the library to find information or to check out a certain book usually means using the card catalog to help you narrow your search. The card catalog lists all the book titles, periodicals, recordings, and other publications the library offers. Modern libraries store their card catalogs in computer databases.

P/lain Search Menu

P/lain Search Menu


Yi»ur Search

Yi»ur Search

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Learning the Skill

Using a computerized card catalog makes it easy to find any information you need for a term paper or a research project. The following guidelines will help you get started in your search for information.

• Type in a subject heading, or the name of an author, or the title of a book, videotape, audiocassette, or CD.

■ The computer will list on screen the subject, author, or title you requested.

• The "card" that appears on screen also lists other important information. Use this information to determine if the material meets your needs.

■ Check to see if the material is available. Find the classification and call number under which it is shelved.

■ Ask a librarian for help if needed.

Practicing the Skill

Study the computerized card catalog screens to the left. Then answer the following questions.

O Your research topic is '"'supply and demand." Which options might you select from the Main Search Menu? G You narrow your search to a book titled Economics Now. How do you know this title will be of help to you? G Why might you use the "Author" search option on the Main Search Menu?

Applying the Skill.

Select a topic from tliis chapter. Search your topic on a computerized card calalog. Jot down two titles and explain why you think they would be useful.

Chapter 21 Supply

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