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Supply

Introduction

In our last article, we looked at the economy from one perspective: consumers. Let’s look at it from the producers’ point of view. Instead of a business selling an iPhone at $200 (our example in the last post), what if we offer our friends $200 for an iPhone. Only people with old, broken phones would offer to sell them. Now, what if we offer our friends $2000 for an iPhone. People will come in hordes to sell it.

Another example is with hourly wage. If McDonalds suddenly began advertising $30/hour cashier jobs, the number of applicants (quantity supplied) would be much greater than a $10/hour cashier job.

Quantity Supplied

As with quantity demanded, quantity supplied is only affected by price. The only thing affected in both of those examples was the quantity supplied. Once again, supply is the entire function of many variables, which determines the quantity that businesses produce.

Factors that Affect Supply

For these factors, I’m going to be including an example from iPhone sales and labor. However, instead of thinking of iPhone sales in terms of people in a classroom, let’s look at it from Apple’s perspective.

Prices of Inputs

If the price of metals used in phones decreases, then iPhones cost less to make. Therefore, at every price-point, Apple makes a bigger profit. For example, if it’s $100 cheaper to make iPhones, Apple is able to sell their phone for $100 less while keeping the same margins. This doesn’t mean they will (they would be perfectly happy making $100 more off each phone!). However, the quantity they would be willing to sell at $100 less is equal to the amount they would’ve sold at the normal price.

Regarding people, this would be like the cost of living going down. Plenty more people would be willing to take a $15/hour job in rural Iowa than in New York City, where the cost of living is tremendously high.

Technology

This is very similar: if technology reduces the cost of production, supply will increase across the board.

Expectations

If the producer expects the price to increase, they will hold their products in order to sell more later. Thus, the supply goes down.

Number of Producers

If the number of producers increases, then the quantity supplied has to increase at every price-point.

If you go into a 200 person class and make the same proposition about iPhones, you will have more quantity supplied than if you go into a 30 person class.

If more people move into a city, the supply for $10/hour jobs will increase, even if it is not ideal.

Taxes

If the government taxes a good, then it costs more to produce, leading to a decrease in supply.

Price of Related Goods

If truck prices increase, automobile makers would rather produce them than convertibles, for example. So, the supply for convertibles would decrease, because there would be fewer producers making them.

Price Elasticity of Demand

Demand