SUPPLY Dr. T. D. Mitchell Bonneville High School Idaho Falls, Idaho Economics: concepts and choices, Holt McDougal

SUPPLY Concept Review Demand is the willingness to buy a good or service and the ability to pay for it. Chapter 5 Key Concept Supply is the willingness and ability of producers to offer goods and services for sale. Economics: concepts and choices, Holt McDougal

WHAT IS SUPPLY? Objectives for this section: Define supply and outline what the law of supply says. Explain how to create and interpret supply schedules. Explain how to create and interpret supply curves. Economics: concepts and choices, Holt McDougal

THE LAW OF SUPPLY Supply Law of Supply Price and Supply Economics: concepts and choices, Holt McDougal

SUPPLY SCHEDULES Individual supply schedules Market supply schedules Supply curve Economics: concepts and choices, Holt McDougal

WHAT ARE THE COSTS OF PRODUCTION? Objectives for this section: Analyze how businesses calculate the right number of workers to hire. Determine how businesses calculate production costs. Explain how businesses use those calculations to determine the most profitable output. Economics: concepts and choices, Holt McDougal

LABOR AFFECTS PRODUCTION Marginal Product – the change in total output brought about by adding one more worker. Specialization – having a worker focus on a particular aspect of production. Marginal Product Schedule – shows the relationship between labor and marginal product. One or two workers produce very little. Increasing Returns – occur when hiring new workers causes marginal product to increase. Economics: concepts and choices, Holt McDougal

MARGINAL PRODUCT SCHEDULE Number of workersTotal ProductMarginal Product Economics: concepts and choices, Holt McDougal

LABOR AFFECTS PRODUCTION Increasing Returns – occur when hiring new workers causes marginal product to increase. Diminishing Returns – occur when hiring new workers causes marginal product to decrease. Economics: concepts and choices, Holt McDougal

PRODUCTION COSTS ManagementMachinery Mortgage on Factory Economics: concepts and choices, Holt McDougal Examples of Fixed Costs

PRODUCTION COSTS WorkersComputer CasesCircuits Economics: concepts and choices, Holt McDougal Examples of Variable Costs

PRODUCTION COSTS SCHEDULE Economics: concepts and choices, Holt McDougal # of WorkersTotal ProductFixed CostsVariable CostsTotal CostMarginal Cost

EARNING THE HIGHEST PROFIT Marginal Revenue – is the money made from the sale of each additional unit of output. Total Revenue – is a company’s income from selling it’s products. Profit-Maximizing Output – is the level of production at which a business realizes the greatest amount of profit. Economics: concepts and choices, Holt McDougal

WHAT FACTORS AFFECT SUPPLY? Objectives for this section: Explain the difference between change in quantity supplied and change in supply. Understand how to determine a change in supply. Identify the factors that can cause a change in supply. Economics: concepts and choices, Holt McDougal

CHANGES IN QUANTITY SUPPLIED A change in the price of bicycles… …causes a change in the quantity supplied Economics: concepts and choices, Holt McDougal

CHANGES IN SUPPLY Input Costs Labor Productivity Technology Government Action Producer Expectations Number of Producers Economics: concepts and choices, Holt McDougal

THE SUPPLY CURVE Economics: concepts and choices, Holt McDougal P Q S A change in quantity supplied S1S1 S2S2 A positive change in positive quantity supplied A negative change in price and quantity supplied P Q2Q2 Q Q1Q1

WHAT IS ELASTICITY SUPPLY? Economics: concepts and choices, Holt McDougal

WHAT AFFECTS ELASTICITY SUPPLY? There are far fewer factors that affect elasticity of supply than elasticity of demand. Changing production to respond to a change in price. Given enough time, the elasticity of supply increases for most goods and services. Supply will be more elastic over a year or several years than it will be if the time to respond is a day, week, or a month. Some industries, take a great deal of time to shift the resources of production to respond to the price changes. Economics: concepts and choices, Holt McDougal

END OF NOTES! Economics: concepts and choices, Holt McDougal