SUPPLY

1. SUPPLY

2. Jump Start Chapter 5 section 1 • The Law of Supply states that • The quantity supplied varies inversely with its price • The quantity supplied irregularly with its price • The quantity demanded varies inversely with its price • The quantity supplied varies directly with its price • All of the following can cause an increase in supply EXCEPT: • A decrease in the cost of inputs • Fewer sellers in the marketplace • An increase in productivity • A change in taxes or subsidies • Which product is likely to have the most elastic supply curve? • Ice cream cones • Automobiles • Ships • Dishwashing machines • The supply curve is • Downward sloping • Level • Upward sloping • Irregular • Increased government regulations can cause the supply curve to • Shift to the left • Shift to the right • Increase • Decrease

3. The Law of Supply • The quantity supplied, or offered for sale, varies directly with its price. If prices are high, suppliers will have more quantities for sale. If prices are low, suppliers will offer smaller quantities for sale. price supply high high-much made price supply low low-few made

4. What is Supply? • Supply is the quantities that would be offered for sale and all possible prices that could prevail in the market.

6. SUPPLY CURVES individual- 1 business supply curve individual- 1 business supply curve business1 + business 2 = market Analysis of supply by economists

7. Supply Curve • Individual Curve • Illustrates how the quantity that a producer makes changes. Why: Depends on the price that will prevail in the market (what the consumer will pay) • Market Curve • Illustrates the quantities and prices that all producers will offer in the market for any product or service • Economist analyze supply • by listing quantities and prices in a supply schedule • Forms supply curve with and UPWARD slope

8. Change in Quantity Supplied • Quantity supplied: The amount of goods that producers bring to the market at any given price • Change in Quantity Supplied; • The change in the amount offered for sale in response to a change in price

9. A change in quantity supplied will move along the original curve.

10. Change in Supply When suppliers offer different amounts of products for sale at all possible prices

11. A change in overall supply will cause the Supply curve to shift. Shift left: decrease in supply Shift right: Increase in supply

13. Change in Supply..WHY? 1. Cost of inputs 2. Productivity 3. Technology 4. Taxes and subsidies 5. Expectations 6. Government Regulations 7. Number of Sellers

14. 1.Cost of inputs Change in Supply..WHY? Change in cost of land, labor and capital If price of input increases, producers produce less quantity. ( S ___ ) If price of input decreases, producers produce more quantity. (S ___)

15. 2. Productivity Change in Supply..WHY? Same input (workers) Motivate workers, train workers better = more output (supply) If productivity increases, producers produce less quantity. ( S ___ ) If productivity decreases, producers produce more quantity. (S ___)

16. 3. Technology Change in Supply..WHY? Buy new machine, lowers cost of producing supply. If technology decreases cost of production,the producers make more quantity. (S ___) This is a shift to the _________

17. 4. Taxes and Subsidies Change in Supply..WHY? If business pays more taxes, then business will make _____ Supply will_____ (shift to the _____ S __) If business pays less taxes then business will make ______Supply will ____ (shift to the ____ S __)

18. 5. Expectations Change in Supply..WHY? Producers (businesses) think about the future. IF they think price will go up, then they produce (make) ___________ S2 IF they think price will go down, then they will produce (make)_________S1 Summer Price $99.00 Winter coming soon! Price $125.00

19. 6. Government regulations Change in Supply..WHY? Sometimes the Government regulates (controls )business activity. If the Government wants to lower standards, this will decrease the cost of making cars. Then carmakers will produce (make)_______ S2 If the Government wants better emission standards, this will increase the cost of making cars. Carmakers will then produce (make)_______ S1

20. 7. Number of Sellers Change in Supply..WHY? In the market for any product there are businesses that compete for customers. If more companies enter the market for a product then supply will_______ S2 If companies leave the market for a product then supply will_______ S1

21. Supply Elasticity: a measure that shows how quantity supplied responds to a change in price 45°angle

22. Elasticity of Supply • Supply Elasticity: a measure that shows how quantity supplied responds to a change in price • Elastic • Small increase in price leads to a larger increase in output—supply • Inelastic • small increase in price causes little change in supply • Unit Elastic • A change in price causes a proportional change in supply

23. Determinants of Supply Elasticity • How quickly a producer can act when a change in price occurs: • Adjust quickly = elastic (ice cream) • Complex/advance planning = inelastic (cars) • Factor of Substitution: • Easy = elastic • Difficult = inelastic

24. Supply Quantity supplied Supply curve Supply elasticity Subsidy Amount that producers bring to the market at any given price Measure of the way in which quantity supplied responds to a change in price A graph showing the various quantities supplied at each and every price that might prevail in the market The amount of a product that would be offered for sale at all possible prices that could prevail in the market A government payment to an individual, business, or other group to encourage or protect a certain type of economic activity Chapter 5 section 1 Vocabulary

25. The Theory of Production

26. Jump Start Chapter 5 section 2 • All of the following are stages of production EXCEPT: • Increasing returns • Diminishing returns • Equaling returns • Negative returns • The period of production that allows producers to change only the amount of the variable input called labor is: • The long run • The short run • The production function • A stage of production • A production function shows • Changes in output in response to changes in input • Changes in input that result from changes in output • The optimum level of production • The optimum level of the four factors of production • In what order do the three stages of production occur? • Negative returns, diminishing returns, increasing returns • Diminishing returns, increasing returns, negative returns • Increasing returns, diminishing returns, negative returns • Increasing returns, negative returns, diminishing returns • The stages of production are based on • The way total product changes over time • The way marginal product changes as variable inputs are added • The way inputs change in response to business decisions • The way output changes independent of input

27. The Production Function • Concept that describes the relationship between changes in output to different amounts of a single input while others are constant

28. The Production Function • Total product is the total output the company produces • Total Product Rises • As more workers are added, total product rises until a point that adding more workers causes a decline in total product • Total product Slows • As more workers are added output continues to rise = it does so at a slower rate until ti can grow no further • More workers “get in the way”

29. The Production Function • Marginal Product is the extra output or change in total product caused by adding one more unit Product output increases Product output decreases Product output negative

32. Three Stages of Production • Stage I: increasing returns • Marginal output increases with each new worker • Companies are tempted to hire more workers (moves them to stage II) • Stage II: diminishing returns • Total production keeps growing but the rate of increase is smaller • Each worker is still making a positive contribution to total output (but diminishing) • Stage III: negative returns • Marginal product becomes negative • Decreasing total plant output

33. Production function Total product Marginal product Concept that describes the relationship between changes in output to different amounts of a single input while other inputs are held constant Total output produced by a firm The extra output or change in total product caused by the addition of one more unit of variable output Chapter 5 section 2 Vocabulary

34. Cost, Revenue and Profit Maximization

35. Jump Start Chapter 5 section 3 • Cost and benefit decision making that compares the extra benefits to the extra cost of an action is called? • Marginal revenue • Marginal cost • Marginal analysis • Marginal output • The total cost of production is determined by • Adding fixed cost and variable cost • Adding marginal and fixed cost • Multiplying fixed and variable cost • Multiplying marginal and fixed cost • All of the following are examples of variable costs EXCEPT: • Labor • Freight • Interest payments on bonds • Electricity • If a business’s fixed cost are large relative to its variable cost, it is likely to • Be more profitable than a firm whose fixed costs are small relative to variable cost. • Produce in stage III of the production function • Produce durable goods rather than service • Operate longer hours than a firm whose fixed cost are small relative to variable cost • Profit is maximized when • Marginal cost is less than marginal revenue • Marginal cost is equal to marginal revenue • Marginal cost is greater than marginal revenue • Marginal cost is growing at the same rate as marginal revenue

36. What kinds of cost do you have to consider? 1. Fixed Cost – the cost to have a business • with or without production • Salaries ($ you pay workers-employees) • Rent • Property Taxes 2. Variable Cost– cost that does change when the business rate of operation or output changes • Electric power • Shipping charges

38. What kinds of cost do you have to consider? • Variable Cost – cost that does change when the business rate of operation or output changes • Electric power(if closed use little power, if open, use more power) • Shipping charges • Total Cost – Sum of the fixed + variable costs • Marginal Cost – Extra cost when one more of something added (ex. Worker)

39. Applying Cost Principles • E-Commerce- business done on the internet • An industry with low fixed cost

40. Measure of Revenue • Total revenue = • Number of units sold multiplied by the average price per unit • Marginal Revenue = • The extra revenue connected with producing and selling an additional unit

41. Marginal Analysis • Marginal Analysis comparing the extra benefits to the extra cost of a particular decision • Break-even point is the total output or total product the business needs to sell in order to cover its total cost

42. Marginal Analysis • Businesses want • # of workers and level of output that generates max. profits • Profit-maximizing: quantity of output is reached when marginal cost and marginal revenue are equal

43. Fixed cost Marginal cost Variable cost E-commerce Total revenue Cost that a business incurs even if the plant is idle and output is zero Extra cost incurred when a business produces one additional unit of product Cost that changes when the business rate of operation or output changes Electronic business or exchange conducted over the internet The number of units sold multiplies by the average price per unit Chapter 5 Section 3 Vocabulary