R-O-T-T-E-N

Definition

R-O-T-T-E-N is an acronym used to remember the key factors that affect supply: Resource prices, Other goods' prices, Technology, Taxes and subsidies, Expectations of future prices, and Number of sellers. Each factor influences how much of a good or service producers are willing and able to supply in the market.

5 Must Know Facts For Your Next Test

1. Resource prices refer to the costs of inputs needed for production. When resource prices rise, supply typically decreases because it becomes more expensive to produce goods.
2. The price of other goods can impact supply; if the price of a substitute rises, producers may divert resources to that substitute instead.
3. Advancements in technology often lead to increased supply as production becomes more efficient and less costly.
4. Taxes increase production costs and can decrease supply, while subsidies lower costs and can incentivize greater production.
5. Producers' expectations about future prices play a significant role; if they expect prices to rise, they may withhold some supply now to sell later at a higher price.

Review Questions

• How do resource prices affect the overall supply of a good in the market?
  • Resource prices are critical because they directly influence production costs. When the cost of raw materials or inputs increases, producers may find it less profitable to produce at previous levels. This leads to a decrease in overall supply since higher costs can make some production unfeasible, shifting the supply curve to the left.
• What role does technology play in determining supply, and how can it lead to shifts in the supply curve?
  • Technology significantly impacts supply by enhancing production efficiency and reducing costs. When firms adopt new technologies, they can produce more output with the same resources or reduce labor costs. This results in an increase in supply as producers are able to offer more goods at lower prices, causing a rightward shift in the supply curve.
• Analyze how expectations of future prices can influence current supply decisions by producers.
  • Expectations about future prices can heavily dictate how much producers are willing to supply now versus later. If producers anticipate that prices will increase in the near future, they may hold back some of their current output to sell at these higher anticipated prices later on. This behavior can lead to a temporary decrease in current supply, influencing market dynamics until those expectations change or are realized.

Related terms

Supply Curve:

A graphical representation showing the relationship between the price of a good or service and the quantity supplied.

Market Equilibrium:

The point at which the quantity supplied equals the quantity demanded, resulting in a stable market price.

Elasticity of Supply: A measure of how responsive the quantity supplied is to a change in price, indicating how much supply will change when prices fluctuate.