Book Information / Sample Chapter(s) (PDF) - Textbook Media

Chapter 4 Demand and Supply
69
$28,000
Exhibit 4-6 Shifts in
Supply: A Car Example
Increased supply means
that at every given price, the
quantity supplied is higher, so
that the supply curve shifts
to the right from S 0
to S 2
.
Decreased supply means that
at every given price, quantity
supplied of cars is lower, so
that the supply curve shifts to
the left from S 0
to S 1
.
Price
$26,000
$24,000
$22,000
$20,000
$18,000
$16,000
p = 20,000
q = 18 million
p = 20,000
q = 16.5 million
p = 20,000
q = 19.8 million
K
L J M
S 1
S 0
S 2
$14,000
$12,000
$10,000
8 13 16.5 18 19.8 23
Quantity
Price
Decrease
to S 1
Original Quantity
Supplied S 0
Increase
to S 2
$16,000 10.5 million 12.0 million 13.2 million
$18,000 13.5 million 15.0 million 16.5 million
$20,000 16.5 million 18.0 million 19.8 million
$22,000 18.5 million 20.0 million 22.0 million
$24,000 19.5 million 21.0 million 23.1 million
$26,000 20.5 million 22.0 million 24.2 million
The cost of production for many agricultural products will be affected by changes in
natural conditions. For example, the area of northern China which typically grows about
60% of the country’s wheat output experienced its worst drought in at least 50 years in
the second half of 2009. A drought decreases the supply of agricultural products, which
means that at any given price a lower quantity will be supplied; conversely, especially
good weather would shift the supply curve to the right.
Goods and services are produced using combinations of labor, materials, and
machinery. When the price of a key input to production changes, the supply curve is
affected. For example, a messenger company that delivers packages around a city may
find that buying gasoline is one of its main costs. If the price of gasoline falls, then in the
market for messenger services, a higher quantity will be supplied at any given price per
delivery. Conversely, a higher price for key inputs will cause supply to shift to the left.
When a firm discovers a new technology, so that it can produce at a lower cost,
the supply curve will shift as well. For example, in the 1960s a major scientific effort
nicknamed the Green Revolution focused on breeding improved seeds for basic crops
like wheat and rice. By the early 1990s, more than two-thirds of the wheat and rice
in low income countries around the world was grown with these Green Revolution
seeds—and the harvest was twice as high per acre. A technological improvement that
reduces costs of production will shift supply to the right, so that a greater quantity will
be produced at any given price.