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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?
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.
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.
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.
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.
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?
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).
what happens when the price of a good increases
quantity supply increases
Hi, At
5:42
the video says 'players' in the market, what is the official terminology please?How drastic could the Change in Supply happen?
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.
At
2:30
, 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
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?
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)?
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.