A common error new economic students make is confusing changes in supply with changes in quantity supplied. A change in quantity supplied is a movement along the supply curve in response to a change in price. A change in supply is a shift of the entire supply curve in response to something besides price.
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- But if an item is cheaper, isn't it because there is more of the item? And vice versa, if an item is expensive, it's because it's harder to produce or there is less of the item. So wouldn't the supply curve be reversed?(5 votes)
- The price of a good goes down not just because there is more or less of a good, it goes down when demand is down too.
A good example is umbrellas at the end of a rainy season. Sellers mark down the price because demand is down, not because they were cheaper to produce.(6 votes)
- A common error new economic students make is confusing changes in supply with changes in quantity supplied. A change in quantity supplied is a movement along the supply curve in response to a change in price. A change in supply is a shift of the entire supply curve in response to something besides price.(7 votes)
- Either I misunderstood, or Sal is wrong with the last assumption. When he mentions that property tax is going down for gas stations, that would rather mean that they could offer more money for gas to the supplier for a bigger quantity. How can the gas get cheaper just because they save money on property tax? Even if the market demand is for more gas, that does not mean it is cheaper for the supplier to produce more. Yeah, they could lower the price and produce a bigger quantity, but that does not make any sense in his example.
If we rather assume that the REFINING cost goes down, instead of the property tax,then the supplier can provide the GAS STATIONS a bigger quantity at the desired price. I think that paints a clearer picture.(4 votes)
- Overall, the business' costs have gone down, since they no longer have to pay as high of a property tax. They can pass this savings along to the consumer, since now they can now afford to take in less of a profit and still cover all their expenditures. Ultimately, it doesn't really matter where the savings came in. The business is now spending less money so they can afford to charge less for their product.(3 votes)
- on the last example that he gave(the one about property tax on gas stations being reduced), since it applies to all companies that supply gas/petrol, all of their supply curves would shift to the right. this means that although they are 'saving' on costs related to running the business, no single company is actually profiting off of the reduction in property tax, since demand for gasoline remains constant right?(2 votes)
- Recall that the model we are using represents the entire market for gasoline, meaning that each individual supplier will not have their own supply curves.
The aggregate supply curve for the market shifts right as a result of the property tax reduction, given that all producers can now either supply more gasoline or can lower the price of their product. The lowering of property taxes on gas stations may also incentivize new suppliers to enter the market.
If the demand remains constant, then the new market equilibrium point will be at a higher quantity supplied and a lower price. Given that more product is being sold at a lower price point, you may not see significant differences in revenue from gasoline sales.
However, in this instance, we are analyzing an increase in market supply, which would be derived from the tax reduction. We are not considering profit increases from such a situation, given that increasing supply is not necessarily connected to increasing profits (given that if everyone increases their supply, and demand remains constant, then the price of the product will drop).(5 votes)
- what happens when the price of a good increases(3 votes)
- Hi, At5:42the video says 'players' in the market, what is the official terminology please?(2 votes)
- How drastic could the Change in Supply happen?(2 votes)
- Well, it usually depends on demand. If price on a car goes up, the demand would go up, and the supply for that specific car increases. There are some circumstances when the supplier would hoard a particular product, making the demand to go up as consumers are likely to buy that product before prices would increase. This tactic is good however, the government doesn't like it because it would affect the economy.(2 votes)
- Is a change in quantity supplied a change in the scale factor of the graph, and a change in supply is a translation of the graph, is this thinking correct?(2 votes)
- I don't understand why a price cap results in a change in quantity supplied rather than a change in supply. If you say you can no longer sell a barrel of oil at £50 you must sell it for £40, then surely your price has changed but not the quantity supplied, resulting in a shift of the curve (not along the curve) and a change in supply (not quantity supplied)?(2 votes)
- The government instituting a price cap did nothing to impact how many goods the business was willing to bring to market at that price. The government did not force the business to bring the same amount of goods to market at a lower price, the government just, in effect, limited the business' ability to operate in the upper part of their supply curve. A change in supply only happens when something causes a business to bring more/fewer goods to market at a particular price point.(1 vote)
- At2:30, if there was a price cap lower than the current price, the suppliers overally would be dissatisfied because of their loss of revenue, so they would prefer to produce and supply other goods, and as a consequence the supply curve for gasoline would eventually shift to the left. Is this statement right in the longterm? Or it is wrong anyway?
Thank you(2 votes)
- [Instructor] We're going to continue our discussion on the law of supply and in particular in this video we're gonna get a little bit deeper to make sure we understand the difference between a change in supply and I'm just using the Greek letter delta here for shorthand for change in supply versus a change in quantity supplied and just as a bit of review, we've talked about it in other videos, supply is referring to the entire supply curve and this curve right over here has the typical shape of a supply curve following the law of supply. At low prices, suppliers would provide low quantities and at higher prices, suppliers would provide higher quantities, so a change in supply would be a shift in this entire curve, so for example, if you were to go from this curve, let's call this S1 and we were to have a shift to the right, this right over here would be a change in supply, so we'd call this S2 and we would have this shift, you could view it as to the right or to the right and down, so this would be our change in supply. Likewise, you could have a change in supply the other way where you go to the left and up depending on how you want to view it and so, this would be, we could call that supply curve three. These would all represent shifts in supply or changes in supply. When we talk about quantity supplied, we're talking about shifts along one of these curves, so for example, at some price, so let's say we have this price P1 right over here, associated with that price we would have some quantity supplied, we have some quantity supplied. Let's call it quantity supplied one and then let's say for some reason, we have a shift in price with the market forces not changing from a supplier's point of view and so, let's say we go to price two, let's say we go to price two, we would shift along that same curve, the curve itself wouldn't have shifted and so, then you have quantity supplied two, so change in supply is a shift of the curve to the left and up or to the right and down versus a change in quantity supplied is moving along the curve and the associated quantities. Now, with that out of the way, let's do some tangible examples and think about would it result in a change in supply or a change in quantity supplied? So, let's say that the government decides that gas prices are too high and so, they institute a price cap and we're gonna talk much more about price caps in future videos but a price cap might just say, and let's say that price cap is below the current price. So, let's say the current price is at P2 and that the price cap is at P3, so the government says, no one is allowed to charge more than P3 for gasoline. What would that result in? Would that result in a change in supply or a change in the quantity supplied? Well, this is a classic case of a shift along a supply curve, the price was there before, now it shifts here and so, now we're going to have a different quantity supplied, so this would be quantity supplied three, so this is a change in quantity supplied and in this case, the change in quantity supplied would go down assuming that the price cap is below what the price was before the price cap. Now, let's give another scenario. Let's say that the price of refining gas goes up. Price of refining goes up. What would that do? Would that be a change in supply or a change in quantity supplied? And pause this video to think about it. Well, this is something that would increase the cost of producing gasoline which is refined from oil across the board regardless of what price we're at, so this would be a general shift, this would be a change in supply and the entire supply curve, think about which way it would shift, think about it from a supplier's point of view. At a given quantity, so let's say we're at this quantity right over here, at a given quantity, they would now want to charge a higher price and it doesn't apply to just that quantity, it could be this point in the curve, this point in the curve, this point of the curve, they'd want to charge a higher price to make up for the fact that refining is now more expensive and so, this would be a shift, you could view it up or shift upward and to the left. You could also view it the other way. At a given price, suppliers would want to provide less quantity because they need to make up the fact that they're paying more for refining that gasoline and so, you could view that as a shift to the left or a shift of up and to the left and so, that would be in that direction, we're kind of shifting like that and then of course we could talk about a scenario that goes the other way. Well, let's say that the property tax in the entire market, property tax on gas stations goes down, so in theory, if the property tax goes down, the cost of running a gas station goes down and this is for everyone in the market, not just one player in the market and so, they might for a given price be able to supply more of a quantity or for a given quantity be able to lower the price. Either way you could imagine shifting from S1 to something that looks like S2, going down and to the right and so, once again, this would be a change in supply because you would have a shift regardless of what price and quantity supplied you are actually at.