For each of the following determine if, for the good marked with bold lettering, there is an increase, decrease, or no change in supply. If the answer is "no change in supply," explain what might...
For each of the following determine if, for the good marked with bold lettering, there is an increase, decrease, or no change in supply. If the answer is "no change in supply," explain what might be changing.
C. Growers of oranges unexpectedly receive extremely favorable weather.
D. Gold mine owners expect the price of gold to increase in the near future.
Both of these questions are about nonprice determinants of supply. These are things that would shift the supply curve, as opposed to things that would cause a movement along a given supply curve.
For the first question, assuming the timing is right, this will lead to greater supply. Supply is defined as the amount of a product (in this case, oranges) that producers can and will sell at a given selling price. So what happens if the weather unexpectedly improves? If it does so at the right time in the oranges’ growth cycle, it will mean that more oranges will be produced. If more oranges are produced, producers will be willing and able to sell more oranges at any given sale price. Thus, supply will increase.
For the second question, we will see a decline in supply in the short term, followed by an increase later on. If you had a gold mine and you thought prices were going to go up soon, wouldn’t you stop selling as much now? You would feel that you should sell less now at a lower price and save up that gold so you could sell it later when the price rose. By doing this, you would be decreasing the amount that you were willing to sell now (a decrease in supply) so that you could increase that amount (increase in supply) later.