price expectation affects supply

[June100 0]

Hello, everyone!

I think that when a producer expects that price will fall, he would supply more now for higher profit relatively.

However, my teacher said that a producer begins to supply less because producers have to plan ahead, if he produces more now, he is likely to end up with a surplus in the future.

I'm sooo confused...please explain this

Thank you😊

[EconDaddy 42]

Hi,

When producers expect prices to fall, they start reducing their supply now (leftward shift of the supply curve), to avoid a surplus that they would not be able to sell at the current price. So your teacher is right.

If producers expect prices to rise in the future, they start producing more now (rightward shift of the supply curve) so that in the future they can sell more at higher prices, increasing their profits.

Hope this helps.

Thanks,

EconDaddy
IB Economics teacher, examiner and tutor
www.econdaddy.com

[June100 0]

On 10/16/2020 at 11:10 PM, EconDaddy said:

Hi,

When producers expect prices to fall, they start reducing their supply now (leftward shift of the supply curve), to avoid a surplus that they would not be able to sell at the current price. So your teacher is right.

If producers expect prices to rise in the future, they start producing more now (rightward shift of the supply curve) so that in the future they can sell more at higher prices, increasing their profits.

Hope this helps.

Thanks,

EconDaddy
IB Economics teacher, examiner and tutor
www.econdaddy.com

Thank you for your help!