Econ – Sept 23
Reading – Chapter 4 and 6
Today – Supply, Equilibrium in the Market, Comparative Statics, Supply and Demand
with goverment intervention
2 Assignment – Sunday, September 26
Variables of Supply: (continued from last day)
4 – Taxes and Subsidies – Taxes are effectively and addition to production costs and
result in decreased supply. Subsidies work in the opposite fashion, decreasing production
costs and increasing supply.
5 – Expectations – the producer’s view of the future may change the supply today.
6 – Prices of Substitutes in Production – Substitutes in production are goods that can be
produced using the same inputs (or input). If the price of a substitute in production of
good X increases (decreases) the supply of good X decreases (increases). For example,
suppose corn and wheat can be grown on the same land. Then if the price of corn rises,
farmers switch to corn, away from wheat and thus, the supply of wheat falls.
(Substitutes or complements will be talking about demand; substitutes in production or
complements in production will be talking about supply.)
7 – Prices of Complements in Production (Joint Products) – Complements in production
are products, which by the nature of production, are produced together. When the price
of a complement in production for good X increases (decreases), the supply of good X
increases (decreases). For example, beef and hides, when the price of beef rises, firms
produce more beef and therefore increase the supply of hides.
8 – Changes In Nature – Natural events such as, hurricanes, frosts, floods can have