Agenda- 4/14 1.Current Events 2.Continue Ch. 5 Lecture- Whiteboards! (RS) 3.Supply Headlines WS (LS) 4.HW: Bring dry erase pens!

Ch. 5 - Supply Or, when Producers control the market…

SUPPLY Quantity supplied (Q s ) is the amount of a good that sellers are willing and able to sell. Law of Supply –The law of supply states that, other things equal, the quantity supplied of a good rises when the price of the good rises. Direct relationship between price & quantity supplied. P, Q s P, Q s

Supply Curve: Supply Schedule: shows the quantity supplied at each given price. Supply Curve: graphs the Supply Schedule (quantities supplied at each possible price.) Relationship between quantity and price is direct and always moves in the same direction.

Supply Schedule/Curve

Graph of Supply Quantity Supplied S1S1

Ben’s Supply Schedule Supplied

Figure 5 Ben’s Supply Schedule and Supply Curve Copyright©2003 Southwestern/Thomson Learning Price of Ice-Cream Cone Quantity of Ice-Cream Cones $ An increase in price increases quantity of cones supplied. Supplied

Change in Quantity Supplied –Movement along the supply curve. –Caused by a change in anything that alters the quantity supplied at each price.

1 5 Price of Ice- Cream Cone Quantity of Ice-Cream Cones 0 S 1.00 A C $3.00 A rise in the price of ice cream cones results in a movement along the supply curve. Change in Quantity Supplied

Homework Book Questions: –P. 118 – “Economic Analysis” –P. 119 – “Economic Analysis” –P. 120 – “Reading Check” & “Economic Analysis” –P. 123 – “Reading Check” –P. 125 – “Reading Check” –P. 125 – “Main Idea” #2, 3, & 4 (Left-Side)

Left–side “Quick Write”: What happens to the price of pumpkins after Halloween? Why? Answer: The price of pumpkins falls because the supply exceeds demand. Write down 5 other examples of situations or markets that are similar Law of Supply

Market Supply Market supply refers to the sum of all individual supplies for all sellers of a particular good or service.

Difference between Supply & Demand Demand is Consumer driven. (What are people willing/able to buy?) Supply is Producer driven. (What are people willing/able to produce?) Demand Graphvs.Supply Graph

Shifts in the Supply Curve Change in Supply –A shift in the supply curve, either to the left or right. –Caused by a change in a determinant other than price.

Figure 7 Shifts in the Supply Curve Copyright©2003 Southwestern/Thomson Learning Price of Ice-Cream Cone Quantity of Ice-Cream Cones 0 Increase in supply Decrease in supply Supply curve,S 3 curve, Supply S 1 curve,S 2

Determinants of Supply Cost of inputs Number of sellers (market curve only) (Competition) Expectations Taxes and subsidies / Govt. regulations Technology / Productivity

Determinants of Supply: Price of inputs : How much does it cost to make a product? An increase in an input will decrease supply –Think—What costs are involved in the production of the t-shirt you’re wearing? Competition: the number of companies in an industry can cause an increase in supply. Companies exiting the market will decrease the supply –Think- What would happen to the supply of the Nintendo Wii if several companies got manufacturing rights? What would happen to the price ?

Determinants cont. Expectations: If a supplier anticipates an economic downturn, they will decrease supply (and vice-versa) Govt. Regulation: an increase in taxes or decrease in subsidies can cause a decrease in supply (and vice-versa) An improvement in technology / increased productivity can cause an increase in supply. *** Not all technology improves productivity ; ) PLAY: Cheaper / Free not always better! Part II

Table 2 Variables That Influence Sellers Copyright©2004 South-Western

Quantity supplied vs. supply: A change in quantity supplied is caused by a change in price or P = Q S Something other than price can cause a change in supply as a whole to increase or decrease.

Example/Thought: When something other than price causes the supply to increase, what do you think happens to price? Answer: The price will decrease because the supply will be too great. s1s1 s2s2

Incentive of Greater Profits: Increase in price and increase in production leads to an increase in profits. P & Production = Profits Higher prices encourage more competitors to join the market. Higher prices encourage potential suppliers to turn into actual suppliers, adding to the total output.

Example/Thought: Why do higher prices encourage more competitors to enter an industry? Think about it in terms of risk and profit. Answer: If prices go up, possible competitors now see that there is more money to be made than before. The gain seems more worth the risk than before.

Whiteboards!!!

The price of wood drops by 50% – graph the change in Supply for boats made of wood.

Price Quantity S1S1 S2S2 Cost of Inputs

The Federal Govt. adds a $2 tax per cigarette pack on the Producer – graph the change in Supply for cigarettes.

Price Quantity S2S2 S1S1 Taxes & Subsidies

New technology allows shoe producers to cut costs by 20% – graph the change in Supply for shoes.

Price Quantity S1S1 S2S2 2 reasons why – Change in technology & Increased Productivity

The Federal Govt. raise minimum wage by 20% – graph the change in Supply for any product.

Price Quantity S2S2 S1S1 2 reasons why – Govt. regulation & cost of inputs

The Federal Govt. removes the requirement to get licensed to sell snow-cones – graph the change in Supply of snow-cones.

Price Quantity S1S1 S2S2 3 reasons why – cost of input, de-regulation, & change in # of competitors

Supply Summary Summary

Law of Diminishing Returns: Adding units of INPUT to increase production increases total output for a limited time period. The extra output for each additional unit will eventually decrease. Businesses will continue to add units of a factor of production until doing so no longer increases revenue. Production Theory 4:02)

Think about working on a project in groups in class. How many students make up a productive team? When is adding more group members actually going to make your project worse? Share you biggest “nightmare” of a group project with a neighbor. Then “find” yourself in the picture on the next slide ; )

Three Stages of Production Stage I: Increasing Returns (we are doing better and better with each worker added) Stage II: Diminishing Returns (we are doing better and better with each worker added but the gains are starting to get smaller. Stage III: Negative Returns (yikes, all these workers are making a mess!)

Total Product (TP): The total output the company produces Marginal Product (MP): The EXTRA output or change in total product caused by adding one more unit of variable input. HW – Supply Headlines WS: On the front, give a sentence describing what will happen & which determinant. Graph can go on front or back.

1.Current Events 2.Finish Ch. 5 lecture 3.Start Ch. 6 lecture 4.HW: Ch. 6 WS + Book ?’s Agenda 11/5:

Volunteers??? Everyone – left-side chart: InputMarg. OutputTotal Output PBJ Time! Background Intro music for Activity

(Talk about) In general, changes that lower the total cost of production or improve productivity will allow the seller to produce more goods or services at each and every price in the market. (Shift-right)

(Talk about) In general, the opposite occurs when productions costs increase or productivity goes down. The producer would then likely bring fewer goods to the market at every possible price. (Shift left)

Theory of Production (Talk about) Producing an economic good or service requires a combination of land, labor and capital. The theory of production deals with the relationship between the factors of production and the output of goods and services.

Short Run This is the period of production that allow producers to change only the amount of variable inputs, usually labor.

Long Run A period of production time long enough for all inputs, including land & capital, to vary. Fixed Costs vs. Variable Costs FC v. VC

Fixed Costs – Those costs that are incurred no matter how many units are produced (“Overhead”) Variable Costs – Those costs that are incurred with each unit produced Total Cost = FC + VC

Homework (left-side) P #19 – 28 P #1 - 5