1. Warm - Up
How do the owners of fast food restaurants know how much food to produce each day?

2. Ch 5.1
Understanding Supply

3. Supply Supply is the amount of goods available
The ___________ is the higher the price, the larger the quantity produced. Thus the lower the price, the quantity supplied falls.
The search for _____ drives the supplier’s decision.
Law of Supply
profit

4. Supply Schedule
Shows the relationship between ______________ supplied for a specific good.
Like a demand schedule, a supply schedule lists supply for a very specific set of conditions. Again, only looking at ______________. Other factors such as the cost of tomato sauce, labor and rent are assumed to remain _______.
price and quantity
price and output
constant

6. Market Supply Schedule shows the total supply in a market.
A Supply curve is the same as demand ________ the horizontal axis now measures the quantity of the good _______ not the quantity demanded.
EXCEPT
supplied

8. Elasticity & Supply
Elasticity of supply measures the way suppliers respond to a change in price
It is the ______________
What determines whether the supply of a good will be elastic or inelastic? The key factor is time.
SAME AS DEMAND

9. TIME
Time is the key factor in determining whether the supply of a good will be elastic or inelastic
In the _______, firms are more _______, so supply is more elastic
In the ________, companies are ___________
Ex. Orange grove … takes years to grow(inelastic)
Haircut – need more, hire workers, if less workers go elsewhere(elastic)
long run
flexible
short run
less elastic

10. Ch 5.2
Cost of Production

11. Labor and Output Marginal Product of Labor
Change in output from hiring one more worker (look at Figure 5.6 p. 109)
Specialization increases output per worker, so the second and third worker add more to output than the first…=
INCREASING MARGINAL RETURNS BUT get
DIMINISHING MARGINAL RETURN with the 4th-7th worker hired and
NEGATIVE MARGINAL RETURN with the 8th worker

12. _________ marginal returns – specialization _____________ per worker
___________ marginal returns – adding more workers increases total output, but at a _________ rate.
_________ Marginal Returns – is an actual decrease in output.
Increasing
increases output
Diminishing
decreasing
Negative

14. Production Costs (p. 111) Fixed Cost Variable Cost Total Cost
Does __________ no matter how much produced. (ex. Rent, taxes on a factory)
Variable Cost
Rise or fall depending on ________________ ( ex. Electricity, labor)
Total Cost
Fixed plus variable = total
Marginal Cost
The additional cost of producing ____________.
not change
quantity produced
one more unit

15. To Shutdown or to not shutdown
If shuts down – still have to pay ________
Sometimes keeping a money-losing factory open is the better choice
Amazon.com (next class) v. Circuit City
fixed costs

16. Ch 5.3
Changes in Supply

17. INPUT
Any change in the _____ of an input used to produce a good – such as raw materials, machinery, or labor – will affect supply.
A rise of ______ causes a fall in _______ at all price levels.
A fall in input will cause an ________ in supply at all price levels.
cost
input
supply
increase

18. Technology _______ costs and increases supply at all price levels
This shifts the supply curve to the ____
Lowers
right

19. Government & Supply Subsidies Taxes Regulation
Government payment that supports a _________________. Ex. Farms
Taxes
Excise tax is a tax on the _________________ of a good Who does this hurt? lower income
Ex: Alcohol, cigarettes
Regulation
Government intervention in a market that affects the price, quantity, or quality of a good.
This can _____________ supply indirectly and often increases price.
business or market
production or sale
raise or lower

20. Other influences Future price expectations of prices.
If the seller expects the price of a good to rise in the ______, the seller will ____ the goods now in order to ________ in the future. On the other hand, if the price of the good is expected to ____ in the near future, sellers will earn more money by placing goods on the market ___________ before the price falls. Expectations of higher prices will ____________ now and increase supply later, and expectations of lower prices will have the opposite effect.
future
store
sell more
drop
immediately
reduce supply

21. Number of suppliers producing a good
If more suppliers enter a market to produce a certain good, the market supply of the good will ____, and the supply curve will shift to the _____. On the other hand, if suppliers stop producing the good and leave the market the swill decline.
rise
right