Question

Identify what happens to a given supply curve as a result of each of the following: a. Resource prices fall. b. Technology advances. c. A quota is repealed. d. A tax on the production of a good is repealed.

Short answer

a. When resource prices fall, the supply curve shifts to the right. b. When technology advances, the supply curve shifts to the right. c. When a quota is repealed, the supply curve shifts to the right. d. When a tax on the production of a good is repealed, the supply curve also shifts to the right.

Step-by-step solution

- Analyzing the impact of falling resource prices

When resource prices fall, it becomes cheaper for producers to create goods. This incentivizes them to produce more, so the supply curve shifts to the right.

- Evaluating the effect of technological advancements

When technology advances, it often means that firms can produce goods more efficiently. This allows them to produce more goods for the same cost. Therefore, the supply curve shifts to the right.

- Assess the change due to repeal of a quota

A quota sets a limit on the amount of a good that can be produced. Once a quota is repealed, this limit is removed, and producers are free to produce more of the commodity, and hence, the supply curve will shift to the right.

- Determine the change due to repeal of a tax

A tax on the production of a good makes it more expensive for producers to create that good. When a tax is repealed, these production costs are reduced, stimulating producers to produce more. Therefore, the supply curve will shift to the right.

Key concepts

Resource Prices Impact

When it comes to the way supply curves behave, few factors are as influential as the prices of resources. Simply put, resources are the raw materials and inputs that companies use to produce goods and services. From the copper used in electronics to the labour employed in manufacturing, the cost of these resources directly impacts how much it costs to make a product.

Imagine the price of cotton decreasing for a t-shirt manufacturer. This reduction in cost means they can now afford to produce more t-shirts at the same or a lower price. As a logical economic response, we typically see the supply curve shift to the right, symbolizing an increase in supply. Economically, this is because the firm's profits would likely rise with lower input costs, incentivizing them to expand production.

Advancements in Technology

Technological advancements can be a game-changer in the production process. They're like unlocking a new level in a video game, allowing producers to do more with less. From automation to new manufacturing techniques, technology can make production faster, cheaper, and more efficient.

In the context of a supply curve, advancements in technology tend to move it to the right, indicating a boost in supply. This is because producers can now make more products without increasing costs, and sometimes even reducing them. For example, suppose a farmer starts using a new type of fertilizer that increases crop yield without requiring extra land. This would mean more produce to sell at the market, contributing to a rightward shift of the supply curve for those crops.

Quota Effects

Quotas are like a regulatory speed limit on production; they cap how much of a product can be produced or sold. When governments impose quotas, they are essentially drawing a line that producers can't cross. This limit protects domestic industries, controls the quantity of goods in the market, or manages resource depletion.

However, what happens when a quota is lifted? It's akin to removing the speed limit on an open highway; producers can press the pedal to the metal. With quotas out of the picture, businesses are no longer constrained by these limits. They can ramp up production to meet demand or take advantage of economies of scale. This leads to the supply curve shifting to the right, illustrating an increase in the quantity supplied at each price point.

Tax Repeal Consequences

Taxes on production act as an additional cost to manufacturers and can suppress the number of goods they are willing or able to supply. It's like running a race with a backpack full of rocks; it slows you down. But when a tax is repealed, it's as though that weight has been lifted. Producers find it less costly to make and sell their products since they no longer have to pay the tax.

The result of a tax repeal is nicely depicted on the supply curve, which once again shifts to the right. This reflects a decrease in production costs and an accompanying increase in supply. In real-world terms, consider a manufacturer who sees a tax on steel being lifted. The cost of producing cars decreases, enabling the manufacturer to supply more vehicles at a given price, which is visualized on a graph as a rightward shift of the supply curve for cars.