1. Supply Unit 2 Ch. 5

2. Objectives Be able to explain the law of supply Be able to explain what supply is Know the factors that shift the supply curve Know the purpose of supply and demand curves

3. Law of Supply Tendency of suppliers to offer more of a good at a higher price less of a good at lower price Price Quantity Supplied

4. Law of Supply Price Quantity Supplied

5. Quantity Supplied The amount a supplier is willing and able to supply based on price and consumer demand.

6. Example: If pizza hut is selling pizza and the price of pizza goes up while the cost of production stays the same – Are they going to try and sell more or less pizza?

7. Supply Curve

8. Supply Shifters?

9. “Energy crisis results in doubling of fuel prices” Does this make you want to produce more or less wheat?

10. Supply Shifter #1: Input Prices Producers will alter the amount they produce based on costs of production

11. “GPS Technology become available for your operation” Does this make you want to produce more or less hay?

12. Supply Shifter #2: Inputs - Technology Producers are able to increase production, and do it more efficiently with technology

13. Technology Process used to produce a good or service – Why is technology important to businesses? Increases efficiency and output Uses the same or a smaller quantity of inputs, or resources Ex: Light Bulb

14. Technology https://www.youtube.com/watch?v=gcwlJfWIlx0 https://www.youtube.com/watch?v=PP--_lg7PjQ https://www.youtube.com/watch?v=0eUeL3n7fDs

15. “A new construction company moves in to the Treasure Valley.” Does this make you want to start a new business or take more risk?

16. Supply Shifter #3: Number of Suppliers More suppliers in the marketplace – More competition – Reduced prices for the same good

17. “Water rights problems arise in your area.” Does this make you want to produce more or less potatoes?

18. Supply Shifter #4: Risk & Future Expectation of Price If a product is going to be ‘risky’ to produce, they will generally decrease production

19. Land in Conservation Reserve Program (CRP) New law doubles acreage for CRP Does this make you want to use this land for production?

20. Land in Conservation Reserve Program (CRP) Supply Shifter #5 &#6: Government Influences Government/ company makes decision – affects producers’ supply

21. Elasticity of Supply Similar to Elasticity of Demand, shows how suppliers will react to a change in price. Elastic - supply is very sensitive to changes in price Inelastic - supply is not very responsive to changes in price

22. What are all of these costs? Fixed Costs Variable Costs Operating Costs Total Cost Marginal Cost

23. Operating Costs: Fixed Cost – Cost does not change no matter how much of a good is produced Variable cost – Cost that rises or falls depending on how much is produced – Examples?

24. FixedVariable

25. Cost Total Cost – FC + VC = TC Marginal Cost – The cost of producing one more unit of a good

27. Marginal Returns Increasing: A level of production in which the product output increases as the number of workers (input) increases Output Input

28. Marginal Returns Diminishing: A level of production in which product (output) decreases as the number of workers (input) increases Output Input

30. Costs of Production Why is this Important? – Explains why firms hire a certain amount of employees – Marginal Product of Labor: Change in output from hiring one additional unit of labor