Other things being equal, improvements in productivity will move the supply curve to the right.
· Weather conditions
The outputs of farmers are very much influenced by variations in the weather. Extremely favorable weather conditions will lead to bumper crops, and unfavorable weather will have the opposite effect. Variations in weather conditions will have an important effect on a farmer’s costs of production. If good weather increases the number of tones of barley yielded by one hectare of land, the cost of producing each tone will be reduced. The increased output is a gift of nature and has not involved the farmer in any extra costs, as the costs of ploughing, harrowing, seeding and fertilizing the land are the same whether it yields a bumper crop or a poor crop. Favorable weather will move the supply curves for agricultural products to the right; unfavorable weather will move them to the left.
· Taxes and subsides
The costs of bringing goods to the market can be changed by imposing taxes on them or by granting subsidies to producers.
The placing of a tax, such as VAT, on a good or service has the same effect as an increase in the costs of production: it moves the supply curve to the left.
Subsides are grants paid by the government to suppliers. They may take the form of a lump sum payment or, more likely, a payment of so much per unit (for example, 5$ per tone or 1$ per gallon). A subsidy has exactly the same effect as a reduction in the cost of production: it moves the supply curve to the right.
An increase in supply lowers the price and increase the quantity demanded. A fall in supply raises the price and reduces the quantity demanded.
1.7.2 The effects of a change in supply
The effects of a movement of the supply curve are illustrated in Figure 1.7.
· An increase in supply
Assume that the original supply curve is SS. The equilibrium price is OP and the quantity demanded and supplied is OQ. Now supply increases, and the supply curve moves to S1S1. The immediate effect is to cause a surplus at the existing price. This surplus, which is shown by the dotted line, will force the price downwards. As the price falls, the quantity demanded increases until a new equilibrium price of OP1 is established. At the price OP1, the quantity demanded is again equal to the quantity supplied.
Other things being equal, an increase in supply will lower the price and increase the quantity demanded.
· A reduction in supply
Now assume that the original supply curve is S1S1. The equilibrium price is OP1 and the quantity demanded and supplied is OQ1. Now supply falls, and the supply curve moves to SS. The immediate effect is to cause a shortage at the existing price. This shortage, which is shown by the heavier section of the price line, will cause the price to be bid upwards. As the price rises, the quantity demanded falls until a new equilibrium price of OP is arrived at. At this price, the quantity demanded is equal to the quantity demanded is equal to the quantity supplied.
Other things being equal, a fall in supply will increase the price and reduce the quantity demanded.
Answer these questions based on the text above:
1. What changes are described as extensions or contractions of supply?
2. What are the more likely causes of movements of the supply curve?
1.7 Изменения в предложении
Мы можем использовать тот же самый вид причин, поскольку мы имели обыкновение объяснять эффекты изменений спроса, иметь дело с изменениями в поставке.
Движения вдоль кривой поставки вызваны изменениями в цене продукта, когда другие вещи не изменяются. Эти изменения в поставляемом количестве описаны как расширения или сокращения поставки.
Движения кривой поставки вызваны изменениями в условиях поставки. Движения кривой поставки представляют увеличения или уменьшения в поставке.
Эти два вида изменений иллюстрированы в иллюстрации 1.6
· Движение вдоль кривой поставки
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