1. Supply

2.  Labor and output  One basic question every business owner must answer is how many workers to hire  Marginal product of labor: the change of output from hiring one or more worker  Increasing marginal returns – increased production with each worker  Diminishing marginal returns - increased production with each additional worker, but at a slowing rate  Negative marginal returns - decreased production with each additional worker

3.  There are many costs when producing a good or service  Fixed costs – cost that does not change no matter how much is produced example: paying rent  Variable cost – costs that are dependent on how much is produced. Example: supplies for producing the good  Total cost is the fixed costs plus the variable cost  Marginal cost is the cost for producing each additional good.

4.  Every business decision is made to answer one basic goal: maximize profits  Profit equals total revenue minus total costs  Marginal revenue and cost  Marginal revenue is the income made by producing one more unit  Marginal revenue should never be lower than the marginal cost Responding to price changes  If the price of one unit of a good a service increases, overall production will increase because the firm will now be able to profit from more units of the good or service

5.  If total revenue is less than total cost a business would be losing money instead of making money. Should the business shut down?  If the total revenue is equal to or more than the variable costs it is smarter to keep the business open.

6.  There are several factors that can shift supply at every price point (shift the demand curve to the right or to the left).  Input costs  A change in the cost of anything used to produce the good will affect supply.  If the price of input costs increases, supply will fall at every price point, because it will be more expensive to produce the good.  Technology can decrease input costs and increase overall production.

7.  Taxes  Excise tax – tax on the production or sale of a good  Generally used to discourage consumers from buying goods that could be harmful to them  Regulation  Government intervention that affects the price, quality, or quantity of a good produced  Subsidies  A subsidy is a government payment that supports a business or market  Used to encourage and support local/domestic business, rather than imports

8.  Many goods are produced to be exported to other countries.  Total supply may decrease at all price points if there is a quota or ban placed on imports

9.  Future Expectations  If suppliers expect the price of their good to rise in the future, they will wait to sell the good till the later time, decreasing the current supply. The opposite will happen if the supplier expects prices to fall.  Inflation is the condition of overall rising prices, which lowers the value of the dollar.  Number of suppliers  If there are more producers the supply will increase overall, whereas if suppliers leave the market the supply will decrease overall.

10.  Finish Ch. 5 Review (P. 122 q 1-7, 9-13).  Equilibrium  Disequilibrium  Excess demand  Excess supply  Price ceiling  Price floor  Rent control  Minimum wage  Search costs  Supply shock  Rationing  Black market  Spillover costs

11.  A supply and demand schedule combines the demand schedule and supply schedule. It shows the amount demanded at each price point as well as the amount supplied at each price point.  The point where demand and supply are equal is the equilibrium. This is where the market is most stable.

12.  To find the equilibrium on a supply and demand graph, simply draw out both the supply curve and the demand curve on the same plot and the point at which they intersect is the equilibrium.  In your notes create a supply and demand graph for the following demand and supply schedule

13.  Disequilibrium occurs any time supply and demand are not equal  Excess demand – more is demanded than supplied  Excess supply – more is supplied than demanded

14.  Price ceiling is the maximum price a seller can charge for a good or service  Rent control  Price floor is a minimum price that must be paid for a good or service  Minimum wage

15.  Answer questions 1-7 on p. 131