merged

The same information can be placed on a graph by plotting the points (coordinates) that
represent each combination of price and quantity supplied. The supply curve for Good X is then
created by connecting the points. The supply curve for Good X is shown in Example 9B below:
Example 9B:
Price
$7 -
S
6 -
.
5 -
.
4 - .
3 - .
2 - .
1 .-
0
0 5 10 15 20 25 30 35 40
Quantity
Notice that the supply curve slopes upward from left to right. Supply curves have a positive slope
because of the direct (positive) relationship between price and quantity supplied.
If the price of Good X changes, there is a movement along the supply curve from one
combination of price and quantity supplied to another. In Example 9B, at a price of $3, the
quantity supplied is 10 units. If the price increases to $4, the quantity supplied increases to 15
units.
But what would cause the quantity supplied to increase or decrease at every price? In other
words, what factor would cause the supply curve to shift to the right (increase) or to the left
(decrease)? The factor that shifts the supply curve is the determinant of supply.
The determinant of supply is the cost of production.
An increase in the cost of production will cause a decrease in supply (supply curve shifts to the
left). A decrease in the cost of production will cause an increase in supply (supply curve shifts to
the right).
Example 10: Referring back to Example 8, what if the fifty persons offered a chance to earn
income by participating in a four-hour product testing were not college students, but were heart
surgeons. Would any of the heart surgeons be willing to supply their labor to this market, even if
the pay offered is $100? Probably not. Heart surgeons would have a higher cost of production
(opportunity cost) for their time.
The cost of producing a good can be changed by a number of common factors, including:
1. The prices of labor and other inputs. An increase in wage rates or in the prices of other
inputs (e.g. rent, interest rates, etc.) would increase the cost of production, and thus would
decrease supply.
2. Technology. Technological advance is the ability to produce more output per resource. A
technological advance would decrease the cost of production, and thus would increase supply.
3. Taxes. A tax imposed on producers would increase the cost of production, and thus would
decrease supply.
FOR REVIEW ONLY - NOT FOR DISTRIBUTION
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3 - 5 Demand, Supply, and Equilibrium