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ABILITY-TO-PAY PRINCIPLE: A principle of taxation in which taxes are based on the income or resource-ownership ability of people to pay the tax. The income tax collected by our friends at the Internal Revenue Service is one of the most common taxes that seeks to abide by the ability-to-pay principle. In theory, the income tax system is set up such that people with greater incomes pay more taxes. Proportional and progressive taxes follow this ability-to-pay principle, while regressive taxes, such as sales taxes and Social Security taxes, don't.
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                           RESOURCE PRICES, SUPPLY DETERMINANT: The prices of the resource inputs that affect production cost and the ability to sell a particular good, which are assumed constant when a supply curve is constructed. An increase in resources prices causes a decrease in supply and a decrease in resource prices causes an increase in supply. Resources prices are one of five supply determinants that shift the supply curve when they change. The other four are production technology, other prices, sellers' expectations, and number of sellers. The resource prices paid for the use of labor, capital, land, and entrepreneurship affect production cost and the ability to supply a good. If resource prices increase, then production cost is higher and the sellers are inclined to offer less of the good for sale. If resource prices decrease, then production cost is lower and the sellers are inclined to offer more of the good for sale.The Cost of ProductionThe ability to supply a good depends on production cost, or the opportunity cost of employing the four factors of production--labor, capital, land, and entrepreneurship. The corresponding resource prices are wage, interest, rent, and profit.Consider the production and supply of Wacky Willy Stuffed Amigos as an illustration. - Higher Resource Prices: An increase in any of the resource prices causes an increase the production cost. Suppose, for example, that the Stuffers Union, which represents workers who put the stuffing into Stuffed Amigos, negotiates a wage increase. This higher resource price means that The Wacky Willy Company offers less for sale at the existing price. If the price remains constant (by assumption), then the supply decreases.
- Lower Resource Prices: A decrease in any of the resource prices causes a decrease the production cost. Suppose, for example, that the price of thread used to stitch together Stuffed Amigos declines. This lower resource price means that The Wacky Willy Company can offer more for sale at the existing price. If the price remains constant (by assumption), then the supply increases.
Shifting the Supply Curve| Resource Prices |  |
A change in resource prices causes the supply curve to shift. This can be illustrated using the positively-sloped supply curve for Wacky Willy Stuffed Amigos presented in this exhibit. This supply curve captures the specific one-to-one, law of supply relation between supply price and quantity supplied. Resource prices are assumed to remain constant with the construction of this supply curve.Now, consider how changes in resource prices shift the supply curve. - Higher Resource Prices: An increase in resource prices causes a decrease in supply and a leftward shift of the supply curve. With the higher prices, production cost rises and the ability to produce the good is diminished. As such sellers sell less of the good. Click the [Higher Prices] button to demonstrate.
- Lower Resource Prices: A decrease in resource prices causes an increase in supply and a rightward shift of the supply curve. With the lower prices, production cost falls and the ability to produce the good is enhanced. As such sellers sell more of the good. Click the [Lower Prices] button to demonstrate.
Recommended Citation:RESOURCE PRICES, SUPPLY DETERMINANT, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2025. [Accessed: July 5, 2025].
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Parker Brothers, the folks who produce the Monopoly board game, prints more Monopoly money each year than real currency printed by the U.S. government.
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"Plans are only good intentions unless they immediately degenerate into hard work." -- Peter Drucker, management consultant
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NLREG
Nonlinear Statistical Regression
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