1. Ch. 5

2. Supply- The quantity of goods and services that producers are willing and able to offer at various prices during a given time period Law of Supply- The larger the price, the higher the quantity produced Quantity Supplied- How much of a good is offered at a specific price  If the price of a good rises, firms will produce more in order to earn more revenue ($)

3.  Like a demand schedule, a supply schedule shows the relationship between price and quantity supplied. Supply Schedule- a table that shows the relationship between the price of the good and the quantity supplied.

5. 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

6. Market Supply Schedule- chart that lists how much of a good all suppliers will offer at different prices

7. Supply Curve- graphic representation of a supply schedule.  Like demand curves, price is always on the y-axis and quantity supplied is on the x-axis  There is a positive relationship between price and quantity supplied. Market Supply Curve- graph of the quantity supplied of a good by all suppliers at different prices

8. Elasticity of Supply- measure of the way suppliers react to a change in price. ▪ Elastic >1 ▪ Unitary Elastic =1 ▪ Inelastic <1  Time determines if the supply of a good is elastic or inelastic  In the short run, a firm cannot easily change its output level so supply is inelastic  In the long run, firms are more flexible, so supply is elastic

9. Elastic supply - When a small change in price greatly affects the quantity supplied. Usually products/services with elastic supply can be made: 1.Quickly 2. Inexpensively 3. With very few resources.  Examples of goods with elastic supply:  sports souvenirs  posters  t-shirts, like after 9/11  cheeseburgers  Nail salons  What do you think an elastic supply curve looks like? Draw one.

10. Inelastic supply- A change in price has little impact on the quantity supplied. Inelastic products usually:  Need a lot of time to produce  Cost a lot of money to produce (high capital input)  Require resources that are difficult to acquire  It’s not easy to adjust supply quickly.  Examples of inelastic goods:  electricity (nuclear power)  Apples, cherries  gold  car production  diamonds  oil  Gasoline –refineries cost billions, 10 years of govt. red tape  Draw a supply curve with inelastic supply.

12.  One of the basic questions a business owner has to answer is how many workers to hire  How will the total # of workers hired affect total production?  The more workers you have, the more product you can make right? WRONG! I need some volunteers!

13. Marginal Product of Labor- change in output from hiring one more worker

14. Increasing marginal returns- level of production in which the marginal product of labor increases as the number of workers increases Diminishing Marginal Returns- level of production in which the marginal product of labor decreases as the number of workers increases

15.  Productivity-Producing the most product with limited resources. Measured by the amount of goods and services produced per unit of input.  Total Product- All the product made in a given time. Total product=total output.  Total costs - Fixed + Variable Costs = Total cost  Fixed Cost- any cost that remains constant, independent of the quantity of production Ex: rent, salaried wages, property taxes,  Variable cost- Costs that are dependent on the quantity of production Ex: any raw materials, parts, hourly wages  Marginal cost- cost of producing one more unit of a good  Total Revenue = price x quantity  Marginal Product- The change in output generated by adding one more unit of input. LOOK AT FIGURE 5:9 on Pg. 111

16.  Profit motive-The desire to make profits. All for-profit companies strive to make money. If profits decrease in an industry, supply decreases also. If profits increase, supply increases  Marginal Revenue- the additional income from selling one more unit of a good

17.  On a supply curve, the only change is price. Other things, over time, cause supply to change. This causes a shift in the supply curve. (Not a movement on the curve, which only comes from a change in price).

18. 1. Prices of resources  If the cost of any of the factors of production increase, suppliers will supply less at every given price.  If the costs decrease, suppliers will supply more at every given price.  -what happens to the supply curve of shoe industry if the price of leather increases? Decreases?  -what happens to the fast food industry when a new minimum wage law goes into effect, increasing the cost of labor?  - Population changes cause labor price changes.  When we have an increase in population (workforce) we have more available labor, which brings down the cost of labor(and allows us to hire more efficient workers) – we get more labor per dollar. When the population decreases the opposite is true – more competition for available labor drives up prices.

19. 2. Government involvement  Taxes: Taxes a business has to pay are costs of doing business. The higher the taxes, the more costs are involved in production. A tax increases shifts the supply curve inward  A tax decrease shifts the supply curve outward  Subsidies: Money paid to businesses by the government to encourage production.  farm subsidies- sometimes used to discourage production as well  development zone subsidies  ‘externality’ subsidies –State of Michigan subsidies for bus fleets using hybrids.  Regulation: Rules passed by the government. The more regulations, the less is supplied. Regulations cost money to follow.

20. 3. Technology  New technology increases efficiency, pushing the supply curve outward (shift to right).  Initially, new technology can be costly, as can research to obtain new technology. Drug companies – research example.

21. 4. Competition  Competition increases supply- competition forces more efficient operation. Lack of competition leads to inefficiency and less supply.

22. 5. Prices of related goods  If a supplier has a choice of producing one product or another, if the price of one of the products changes, it affects the other product(s) as well. Examples:  Wheat vs. corn.  Tennis shoes vs. casual shoes.  Steelcase: Panels vs. desks

23. 6. Producer expectations  If a producer expects the price of his product to rise, he will produce more in anticipation. If he thinks the prices will be lower, he will decrease production.  If a producer expects the economy to boom, he will expect higher demand and higher prices. He will increase production. If he expects a falling economy, he will decrease production.  Christmas and holiday production

24. 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 results in a movement along the supply curve.

25. Price of Ice-Cream Cone 0 2.50 2.00 1.50 1.00 1234567891011 Quantity of Ice-Cream Cones $3.00 12 0.50 1. An increase in price... 2.... increases quantity of cones supplied.