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Chapter 3: Problem 2

What is the difference between a change in supply and a change in quantity supplied?

Short Answer

Expert verified
A change in supply involves a shift in the supply curve due to non-price factors and results in a new supply curve. But a change in quantity supplied is a movement along the same supply curve due to changes in prices only.

Step by step solution

01

Definition of a Change in Supply

A change in supply refers to a shift of the supply curve due to reasons other than price change. Factors such as production costs, technology, and seller expectations can cause this. The outcome is a new supply curve.
02

Definition of Change in Quantity Supplied

A change in quantity supplied refers to a movement along the same supply curve due to price variations. Here, the supplier makes changes in the quantity of the good provided because of price fluctuations. The supply curve remains the same.
03

Comparison of the Two

While a change in supply involves shifting of the entire supply curve and is caused by factors other than price change, a change in quantity supplied is a movement along the same supply curve and arises only due to variations in price.

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Supply Curve
The supply curve is a visual representation of the relationship between the price of a good and the quantity sellers are willing to supply. The curve is typically upward sloping, meaning as the price increases, so does the quantity supplied. This is because higher prices make it more attractive for sellers to supply more goods.
  • Movement along the supply curve happens when there is a change in the price of the good itself, leading to a change in quantity supplied.
  • A shift of the supply curve indicates a change in supply, influenced by factors other than the price, like production costs, technology, and expectations.
Understanding these movements and shifts is crucial to distinguish between changes in quantity supplied and changes in supply.
Production Costs
Production costs are the expenses businesses incur to produce goods or services. They include raw materials, labor, and overheads. Decreases in production costs typically lead to an increase in supply. This shifts the supply curve to the right, meaning more goods can be produced and offered at each price level. Conversely, increased production costs can decrease supply, shifting the curve to the left.
  • Raw material prices: A fall in prices can lower production costs and increase supply.
  • Wages and labor costs: If labor costs decrease, firms can supply more at the same prices.
Businesses continuously strive to manage and reduce production costs to remain competitive and profitable.
Technology
Technology plays a significant role in the supply of goods. Technological advancements often lead to more efficient production processes. This reduces the cost of production and can result in an increased supply of goods. When technology improves, the supply curve shifts to the right.
  • Automation: Automation in factories can lead to faster production with fewer errors, increasing supply.
  • Innovation: New technologies can enable producers to create new or improved products.
Technology's impact on supply is crucial as it can significantly alter market dynamics by changing how resources are used.
Seller Expectations
Seller expectations involve the projections and assumptions producers hold about the future. These expectations can affect their current supply of goods. If sellers expect the price of their product to rise in the future, they may reduce supply now to benefit from higher future prices, shifting the supply curve to the left.
  • Price expectations: High expectations might lead to withholding supply in the present.
  • Economic forecasts: Predictions about the economy can affect production decisions.
Understanding how seller expectations influence supply helps in predicting market behavior and planning strategic business actions.

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Most popular questions from this chapter

According to a news story about the International Energy Agency, the agency forecast that "the current slide in [oil] prices won't [reduce] global supply." Would a decline in oil prices ever cause a reduction in the supply of oil? Briefly explain. Source: Sarah Kent, "Plunging Oil Prices Won't Dent Supply in Short Term," Wall Street Journal, December 12, \(2014 .\)

Years ago, an apple producer argued that the United States should enact a tariff, or a tax, on imports of bananas. His reasoning was that "the enormous imports of cheap bananas into the United States tend to curtail the domestic consumption of fresh fruits produced in the United States." a. Was the apple producer assuming that apples and bananas are substitutes or complements? Briefly explain. b. If a tariff on bananas acts as an increase in the cost of supplying bananas in the United States, use two demand and supply graphs to show the effects of the apple producer's proposal. One graph should show the effect on the banana market in the United States, and the other graph should show the effect on the apple market in the United States. Be sure to label the change in equilibrium price and quantity in each market and any shifts in the demand and supply curves.

[Related to Solved Problem 3.3 on page 88\(]\) An article discusees the market for autographs by Mickey Mantle, the superstar center fielder for the New York Yankees during the 1950 s and 1960 s, "At card shows, golf outings, charity dinners, Mr. Mantle signed his name over and over." One expert on sports autographs was quoted as saying, "He was a real good signer.... He is not rare." Yet the article quoted another expert as saying, "Mr. Mantle's autograph ranks No. 3 of most-popular autographs, behind Babe Ruth and Muhammad Ali." A baseball signed by Mantle is likely to sell for the relatively high price of \(\$ 250\) to \(\$ 400\). By contrast, baseballs signed by Whitey Ford, a teammate of Mantle's on the Yankees, typically sell for less than \(\$ 150\). Use one graph to show both the demand and supply for autographs by Whitey Ford and the demand and supply for autographs by Mickey Mantle. Show how it is possible for the price of Mantle's autographs to be higher than the price of Ford's autographs, even though the supply of Mantle autographs is larger than the supply of Ford autographs.

[Related to Solved Problem 3.4 on page 94\(]\) The demand for watermelons is highest during summer and lowest during winter. Yet watermelon prices are normally lower in summer than in winter. Use a demand and supply graph to demonstrate how this is possible. Be sure to carefully label the curves in your graph and to clearly indicate the equilibrium summer price and the equilibrium winter price.

Related to the Apply the Concept on page 81\(]\) An article on marketwatch.com stated, "While the fizzy soda drinks companies have experienced an annual volume sales decline since \(2003,\) bottled water grew every year over the last two decades, except 2009 during the depths of the Great Recession." a. What factors have caused a decline in sales of carbonated ("fizzy") beverages? Is it likely that those factors will lead to further declines in demand in the future? Briefly explain. b. Why might sales of bottled water be likely to decline during a recession, when employment and household incomes fall? Would sales of premium bottled water be likely to decline by more or by less during a recession than sales of regular bottled water? Briefly explain.
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