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Year 11 Economics - Flow on effects of change in supply

Terms in this set (8)

House painting and gardening are related goods / services, as they are both outdoor jobs that the business can provide using it's time, and similar resources, such as labour and its van.

These increased legal requirements will increase the cost of production as more expensive equipment (to hire/buy) must be used

With house painting now less profitable, It will devote more of it's time and resources, such as its van, to gardening services. Gardening services will be relatively more profitable than house painting, as it does not have the increased costs associated with safety requirements associated with scaffolds and ladders. Consequently, the supply of gardening services will increase, and the supply curve for gardening services will shift to the right from S to S1. The supply of painting houses services will decrease as costs of production have increased so it is less likely to be as profitable as before with decreased ability to cover production costs. The supply curve will shift to the left from S to S1.

Flow on effects

As the business is now providing gardening services, it's van might not be suitable for the type of equipment it relies on, and consequently, it's van might need to be modified

The business might have to sell redundant painting equipment and purchase more specialised gardening tools with the proceeds

The business will have to change its advertising to attract gardening clients, instead of painting clients.

The business may need to hire workers experienced in gardening, and perhaps make redundant those who are not trained in gardening, or who do not wish to offer gardening services.
Relationship between ginger beer and apple juice:
Ginger beer and apple juice are related goods for this business, in that they are similar / alternative (NOT: Substitute) goods where resources used for the production of one good can also be used for the production of the other. In this case ginger beer and apple juice may use similar resources such as bottles and vats.
Lower prices of ginger beer will mean the business will divert his resources from the production of ginger beer to the production of apple juice, hence increasing supply of apple juice at each and every price. With ginger beer being less profitable, this has made apple juice relatively more profitable than ginger beer, so the business will have an incentive to supply more apple juice. This is shown as a shift of the supply curve of apple juice to the right from S to S1.

A flow-on effect:

Examples include: The business may have to produce new labels for its apple juice bottles / source different ingredients, ie apples for juicing / change its advertising towards apple juice / switch existing workers from ginger beer to apple juice production which may involve retraining workers. If the business's workers are not skilled in apple juice production, it may have to lay off those workers and employ workers specifically trained in apple juice production. It may have to sell off some ginger beer equipment and purchase equipment specific to apple juice production such as a juicing machine (eg the idea of switching resources away from ginger beer to apple production).