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Supply

Supply. At the beginning of class. Grab your book Take out your notebook Please define: marginal product of labor increasing marginal returns diminishing marginal returns. What are the costs of production?. Production costs Fixed costs

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Supply

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  1. Supply

  2. At the beginning of class . . . Grab your book Take out your notebook Please define: marginal product of labor increasing marginal returns diminishing marginal returns

  3. What are the costs of production? • Production costs • Fixed costs • A cost that does not change no matter how much of a good is produced • Most fixed costs involve the production facility • The cost of the building • Rent • Machinery repairs • Property taxes • Salaries of workers

  4. What are the costs of production? B. Variable Costs 1. A cost that rises or falls depending on the quantity produced 2. costs of raw materials and some labor a. To produce more of one product, the raw materials and labor will increase. b. To produce less, the materials and labor will decrease 3. Electricity is included in variable costs

  5. What are the costs of production? C. Total Cost 1. The sum of the fixed costs plus the variable costs

  6. What are the costs of production? D. Marginal Cost 1. the cost of producing one more unit of a good 2. Look at figure 5.5 on page 120 3. Marginal cost and marginal returns are based upon specialization. E. Marginal Revenue 1. the additional income from selling one more unit of a good; sometimes equal to price.

  7. Homework 1 + 2, p 119 1 + 2, p. 120 1 + 2. p. 121

  8. Good After! In your notebook, please define: Marginal revenue Average cost Operating cost Read 120-122

  9. Setting Output II. Setting Output A. Marginal Revenue and marginal cost 1. Marginal revenue (price) a. the additional income from selling one more unit b. marginal revenue should not be less than marginal cost 2. Average cost a. total cost divided by the quantity produced

  10. B. Responding to price changes • 1. When price levels increase, the marginal revenue increases over the marginal cost and the company will produce more • This is the Law of Supply in action

  11. C. The Shutdown Decision • 1. When the total cost is more than total revenue • If prices drop below the cost to make an item, factories will shut down or switch their production lines • The Law of Supply

  12. Application: • With your table partner, please complete number 10 on page 122 and turn it in. • # 10, a, b, and c

  13. Four effects on supply • Price of inputs • New technology • Weather • Government regulation . . .

  14. Government regulation • Subsidies • Government payment that supports a business or market • Government pays a set subsidy for each unit of a good produced • Lower costs of production • Farmers are often subsidized • Manufacturers in developing nations

  15. Government regulation • Excise Taxes • Government can reduce the supply of goods by using an excise tax • Adds cost for each unit sold • Alcohol, cigarettes, high-pollutant gasoline • Supply curve shifts to the ????

  16. Government regulation • Regulation • Government intervention in a market that affects price, quantity, or quality of a good • Law to require car manufacturers to install technology reduce pollution from auto exhaust • Law requiring gasoline companies to sell lead-free fuel

  17. Study Guide: Supply and Demand Concepts: Supply and Demand Two reasons for the law of demand Four events that can shift demand. Supply. Know the difference between elastic and inelastic demand. Be able to provide examples. Know the 2 different costs of production and examples of each. Graphs: Supply, demand Tables: Production costs table Know three ways that the government affects supply

  18. Study Guide: Supply and Demand: Vocab • Demand • Law of demand • Substitution effect • Income effect • Ceteris paribus • Demographics • Inelastic demand • Elastic demand • Total revenue • Supply • Law of supply • Increasing marginal returns • Diminishing marginal returns • Fixed cost • Variable cost • Total cost • Marginal cost • Marginal revenue • Average cost • Subsidy • Excise tax • Regulation

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