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Factors Affecting Supply

Factors Affecting Supply



Economic Definitions

Economic Definitions



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    Factors Affecting Supply Factors Affecting Supply Presentation Transcript

    • Factors Affecting Supply How do Producers and Speculation affect Supply?
    • Factors beyond Price
      • Changes in the Supply of goods and services can, and are, influenced by factors outside of the control of individual Producers.
        • Each Producer of a good sets individual production levels that then affect the market as a whole.
        • The market itself can affect supply by changing price expectations. For example, the higher the price of a good, the more of it that will be produced.
        • These price expectations can lead to what is referred to as Speculation . Speculation is the holding, or purchasing, of a good with the expectation that the price will increase in the future.
    • Producer Factors of Supply
      • A very simple factor determining the supply of a good is the number of producers of that good.
        • If the supply of a good is low and the price of a good is high, move producers will begin to make that good.
          • Even if supply of a good is high, high prices for the good will still entice more producers to shift to that good.
    • Speculation and Supply
      • If Producers feel that the value of their good will be higher in the future, they have the option of holding onto their good until then.
        • This lowers the supply of the good in the short-term on the speculative view of higher prices in the future.
        • On the flip side of this, if prices are expected to go down, producers will sell as many goods as they can, thus increasing supply, in order to maximize their profits.
    • Examples
      • Producer Influenced
        • New Producers entering the Market
        • Changes in Producer’s Goods
        • Producer Growth in Scale
      • Speculation
        • Farmers waiting to sell crops
        • Factories stockpiling inventory
        • Store sales