5.1 What is Supply?

5.1 Vocab Supply Law of Supply Supply Schedule Supply Curve Market Supply Curve Quantity Supplied Change in Quantity Supplied Subsidy Supply Elasticity

Intro The concept of supply is based on voluntary decisions made by producers, whether they are proprietorships working out of home offices or large corporations operating out of downtown corporate headquarters. Ex. A producer might decide to offer one amount for sale at one price and a different quantity at another price

Intro Supply: the amount of a product that would be offered for sale at all possible prices Because the producer is receiving payment for the products, it shouldn’t come as a surprise that more will be offered at higher prices Which forms the Law of Supply Law of Supply: principle that more will be offered for sale at the higher prices than the lower prices

The Supply Schedule All suppliers of products must decide how much to offer for sale at the different prices What is best for the individual seller A supply schedule is used to help Table that shows how much a producer will supply at possible prices Much like a demand schedule Unlike a demand schedule, quantity goes up when price goes up

The Supply Schedule Like the demand schedule, this can be graphed Forms a supply curve Will have an upward slope When you combine multiple supply schedules and graph them, you create a market supply curve

The Supply Schedule Quantity supplied: amount offered for sale at a given price Change in quantity supplied: change in the amount offered for sale when that price changes

Change in Supply Change in supply is a situation where different amounts are offered for sale at all possible prices in the market A shift on the supply curve Different from a change in quantity supplied The key is that the quantity changes even though the price didn’t When the old supply and the new supply are graphed together a shift to the right or left will happen Left=decrease in supply Right=increase in supply

Change in Supply Changes happen for many reasons Cost of resources Productivity Technology Taxes and subsidies Government payments to encourage or protect certain economic activities Expectations Government regulations Number of sellers

Elasticity of Supply Supply elasticity: measure of how the quantity supplied responds to a change in price If an increase in price leads to a proportionally larger increase in output=supply is elastic If an increase in price causes a proportionally smaller change in output=supply is inelastic If an increase in price causes a proportional change in output=supply is unit elastic

Elasticity of Supply The elasticity of supply depends on production If a producer can adjust quickly supply is likely elastic ( toys, candy, items that can be made quickly) If a producer cant it is likely inelastic (nuclear power, energy) Substitutes, ability to delay purchase, or the portion of income do not play a factor on supply elasticity Only production matters

5.2 The Theory of Production

5.2 Vocab theory of production short run long run Law of Variable Proportions production function raw materials total product marginal product stages of production diminishing returns

Intro The theory of production generally is based on the short run, a period of production that allows producers to change only the amount of the variable input called labor. This contrasts with the long run, a period of production long enough for producers to adjust the quantities of all their resources, including capital.

Intro For example, Ford Motors hiring 300 extra workers for one of its plants is a short-run adjustment If Ford builds a new factory, this is a long-run adjustment.

Law of Variable Proportions In the short run, output will change as one variable input is altered, but others inputs are kept constant The Law of Variable Proportions looks at how the final product is affected as more units of one variable input or resource are added to a fixed amount of other resources. Economists prefer that only a single variable be changed at any one time so the impact of this variable on total output can be measured

The Production Function The concept illustrates the Law of Variable Proportions within a production schedule or a graph It describes the relationship between changes in output to different amounts of a single input while others are held constant.

The Production Function Total product is the total output the company produces: a production schedule shows that, as more workers are added, total product rises until a point that adding more workers causes a decline in total product Marginal product is the extra output or change in total product caused by adding one more unit of variable input.

Three Stages of Production Satge 1: (increasing returns), marginal output increases with each new worker. Companies are tempted to hire more workers, which moves them to Stage II Stage 2: (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 it is diminishing Stage 3: (negative returns), marginal product becomes negative, decreasing total plant output