Factors Affecting Supply
Answer to Try It
- The cost of farm labor has decreased.
Correct! Lower inputs cost are on factor that can shift the supply curve rightwards.
- There has been an exceptionally short growing season this past year.
This is incorrect. Unfavorable natural conditions are likely to shift the demand curve leftwards, not rightwards.
- The price of wheat, a substitute, has increased.
Incorrect. Higher substitute costs will shift the demand curve rightwards, not the supply curve.
- The supply curve would shift inwards.
This is incorrect. Despite the drought and labor strike, the subsidy could counteract this somewhat or entirely.
- It is impossible to tell with the given information.
Correct. A subsidy should shift supply rightwards, while the drought and labor strike has the opposite effect. We have know way of knowing which is stronger.
- This is incorrect. While a subsidy should boost supply, this may be outweighed by the downward pressure from drought and labor strike.
This is incorrect. While a subsidy should boost supply, this may be outweighed by the downward pressure from drought and labor strike.
The four factors that can shift the supply curve include natural conditions, input prices, technology, and government. Natural conditions include any natural event that may favorably or unfavorably impact production. Lower input costs will increase the profit margin of the supplier, encouraging them to provide more output at any given price. Improved technology can increase what a supplier can produce with a given set of inputs. Government intervention can either encourage or discourage production depending on the type of intervention (subsidy vs. tax, regulation vs. deregulation, etc).