No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter Four: Supply 94 to produce subs. In this case, the supply of cheeseburgers will decrease, as in Figure 4.5 . Complements in production arise when items are necessarily produced together. For instance, most silver is mined as a byproduct of mining for other metals such as copper or gold (approximately 70%). So if the price of copper rises, the quantity supplied of copper will increase due to increased production in copper, and the supply curve of silver will rise as well (shifting right per Figure 4.4 ) , since the increased production of copper will simultaneously generate more silver. Technology tends to cause positive supply shifts (increases in supply) as technology makes more efficient production and distribution possible. One of the major increases in supply of many of life’s conveniences is due to increased computer control of production and distribution processes. Walmart is able to drive down prices by very precise control of inventory with computers. Trucking companies drive down prices by the use of GPS in trucks, auto manufacturers use robotics to paint cars, and doctors use MRIs to detect serious medical problems. All of these examples tend to drive an increase in supply of the associated good or service. Occasionally technology may go in reverse; regulations in the 1990s drove CFC refrigerants out of the market, forcing the use of more expensive gases and caused a decrease in supply. Fears over nuclear energy have resulted in regulatory restrictions of nuclear technology, resulting in a decrease in the supply curve of electricity. While regulatory changes don’t directly result in a reduction in technology, they may result in a reduction in the availability of technology, which reduces supply. Political or weather changes can cause supply to increase or decrease. Political instability in the Middle East, for example, frequently results in a reduction of the supply of oil. Increasing tax rates tend to reduce supply, while reducing tax rates leads to an increase in supply. A drought in the U.S. in 2012 resulted in sharply lower supply of agricultural goods and correspondingly higher prices. Likewise the disastrous magnitude 9.0 earthquake in Japan in 2011 resulted in a significant disruption to multiple markets as critical supply components made in Japan were unavailable for several months. A final factor affecting supply is the number of suppliers. Ceteris paribus (all else equal): if there are a larger number of suppliers, the supply curve will shift out. This is analogous to what we saw with demand: if the size of the market increased, so did demand. Supply likewise expands with more suppliers. FACTORS INFLUENCING SUPPLY: 1. Expectations of future prices 2. Prices of factors of production 3. Prices of related goods 4. Technology 5. Political or weather changes 6. Number of suppliers