Price Expectations

Changes in expectations about the future price of a product may affect the producer's current willingness to supply that product. It is difficult, however, to generalize about how a new expectation of higher prices affects the present supply of a product. Farmers anticipating a higher corn price in the future might withhold some of their current corn harvest from the market, thereby causing a decrease in the current supply of corn. Similarly, if people suddenly expect that the price of Nortel stock will rise significantly in the near future, the supply offered for sale today might decrease. In contrast, in many types of manufacturing industries, newly formed expectations that price will increase may induce firms to add another shift of workers or to expand their production facilities, causing current supply to increase.

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