IB Economics Topic 2.2.4 Non-price Determinants of Supply Revision Notes (SL/HL)

IB Economics Topic 2.2.4 Non-price Determinants of Supply Revision Notes (SL/HL) | RevisionDojo

Price is not the only factor that affects the supply of an individual firm or the market. These other factors are referenced to as the non-price determinants of supply.

Definition

Non-Price Determinants of Supply

Factors, other than price, that can affect the supply of a firm (or multiple firms) and shift (change position) the supply curve.

Note

The most important thing to note in this topic is that:

Changes in price changes the amount of a good or service supplied (causing a movement along the supply curve).
Changes in the non-price determinants of supply change the supply in the market (causing a shift of the supply curve).
1. A rightward shift means that for a fixed given price, supply increases and more is supplied.
2. A leftward shift means that for a fixed price, supply decreases and less is supplied.

The non-price determinants of supply covered in the IB curriculum:

Changes in costs of factors of production.
Price of related goods.
Indirect taxes and subsidies.
Future price expectations.
Changes in technology.
Number of firms in the market.

Changes in costs of factors of production (FOPs)

Definition

Factors of production

All resources or inputs used to produce goods and services.

Increased costs of factors of production → leftwards shift

When the costs of FOPs rise (such as higher wages, increased rent, or pricier raw materials) production becomes more expensive.
This increase in costs reduces the quantity that the firm (or firms) is willing and able to supply for every given price.

Decreased Costs → rightwards shift

Alternatively, If FOPs costs fall, production becomes cheaper and more profitable.
This reduction in costs means the firm (or firms) is willing and able to supply more for a given price

Prices of related goods: competitive and joint supply

Competitive supply

Definition

Competitive Supply

Goods or services in Competitive Supply are alternate use of resources of each other where they compete for the use of the same resources.

If two goods are in competitive supply, producing more of one means that the production of the other has to be reduced.

Example

Assume that a company $A$ can use its resources to produce smartphones or smartwatches.

If the company produces more smartwatches, it has to produce less smartphones.
If it produces more smartphones, then it has to produce less smartwatches.

Higher prices of a competing good → leftwards shift

A rise in the price of one good (e.g., smartwatches) incentivises firms to produce more of that good (more smartwatches since their price has increased).
Therefore, this leads to the supply of the competing goods (e.g., smartphones) to fall because the resources are allocated to the goods in which the prices increased (since firms look to increase their revenue).

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Definition

Paywall

(on a website) an arrangement whereby access is restricted to users who have paid to subscribe to the site.

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Note

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Excepteur sint occaecat cupidatat non proident

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Lorem ipsum dolor sit amet, consectetur adipiscing elit.
Sed do eiusmod tempor incididunt ut labore et dolore magna aliqua.
Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris.
Duis aute irure dolor in reprehenderit in voluptate velit esse cillum.

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Price is not the only factor that affects the supply of an individual firm or the market. These other factors are referenced to as the non-price determinants of supply.

Definition

Non-Price Determinants of Supply

Factors, other than price, that can affect the supply of a firm (or multiple firms) and shift (change position) the supply curve.

Note

The most important thing to note in this topic is that:

Changes in price changes the amount of a good or service supplied (causing a movement along the supply curve).
Changes in the non-price determinants of supply change the supply in the market (causing a shift of the supply curve).
1. A rightward shift means that for a fixed given price, supply increases and more is supplied.
2. A leftward shift means that for a fixed price, supply decreases and less is supplied.

The non-price determinants of supply covered in the IB curriculum:

Changes in costs of factors of production.
Price of related goods.
Indirect taxes and subsidies.
Future price expectations.
Changes in technology.
Number of firms in the market.

Changes in costs of factors of production (FOPs)

Definition

Factors of production

All resources or inputs used to produce goods and services.

Increased costs of factors of production → leftwards shift

When the costs of FOPs rise (such as higher wages, increased rent, or pricier raw materials) production becomes more expensive.
This increase in costs reduces the quantity that the firm (or firms) is willing and able to supply for every given price.

Decreased Costs → rightwards shift

Alternatively, If FOPs costs fall, production becomes cheaper and more profitable.
This reduction in costs means the firm (or firms) is willing and able to supply more for a given price

Prices of related goods: competitive and joint supply

Competitive supply

Definition

Competitive Supply

Goods or services in Competitive Supply are alternate use of resources of each other where they compete for the use of the same resources.

If two goods are in competitive supply, producing more of one means that the production of the other has to be reduced.

Example

Assume that a company $A$ can use its resources to produce smartphones or smartwatches.

If the company produces more smartwatches, it has to produce less smartphones.
If it produces more smartphones, then it has to produce less smartwatches.

Higher prices of a competing good → leftwards shift

A rise in the price of one good (e.g., smartwatches) incentivises firms to produce more of that good (more smartwatches since their price has increased).
Therefore, this leads to the supply of the competing goods (e.g., smartphones) to fall because the resources are allocated to the goods in which the prices increased (since firms look to increase their revenue).

Definition

Paywall

(on a website) an arrangement whereby access is restricted to users who have paid to subscribe to the site.

anim nostrud sit dolore minim proident quis fugiat velit et eiusmod nulla quis nulla mollit dolor sunt culpa aliqua

Duis aute irure dolor in reprehenderit

Note

Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam quis nostrud exercitation.

Excepteur sint occaecat cupidatat non proident

Tip

Lorem ipsum dolor sit amet, consectetur adipiscing elit.
Sed do eiusmod tempor incididunt ut labore et dolore magna aliqua.
Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris.
Duis aute irure dolor in reprehenderit in voluptate velit esse cillum.

1. Introduction to Economics2 subtopics

2. Microeconomics12 subtopics

3. Macroeconomics7 subtopics

4. The Global Economy10 subtopics

IB Economics 2.2.4 Non-price Determinants of Supply Notes

1. Introduction to Economics2 subtopics

2. Microeconomics12 subtopics

3. Macroeconomics7 subtopics

4. The Global Economy10 subtopics

Changes in costs of factors of production (FOPs)

Prices of related goods: competitive and joint supply

Competitive supply

anim nostrud sit dolore minim proident quis fugiat velit et eiusmod nulla quis nulla mollit dolor sunt culpa aliqua

Duis aute irure dolor in reprehenderit

Excepteur sint occaecat cupidatat non proident

Unlock the rest of this chapter with a free account

Changes in costs of factors of production (FOPs)

Prices of related goods: competitive and joint supply

Competitive supply

anim nostrud sit dolore minim proident quis fugiat velit et eiusmod nulla quis nulla mollit dolor sunt culpa aliqua

Duis aute irure dolor in reprehenderit

Excepteur sint occaecat cupidatat non proident

Unlock the rest of this chapter with a free account