1. 5.1
What is Supply?

2. 5.1 Vocab Supply Law of Supply Supply Schedule Supply Curve
Market Supply Curve
Quantity Supplied
Change in Quantity Supplied
Subsidy
Supply Elasticity

3. Intro
The concept of supply is based on voluntary decisions made by producers, whether they are proprietorships working out of home offices or large corporations operating out of downtown corporate headquarters.
Ex. A producer might decide to offer one amount for sale at one price and a different quantity at another price

4. Intro
Supply: the amount of a product that would be offered for sale at all possible prices
Because the producer is receiving payment for the products, it shouldn’t come as a surprise that more will be offered at higher prices
Which forms the Law of Supply
Law of Supply: principle that more will be offered for sale at the higher prices than the lower prices

5. The Supply Schedule
All suppliers of products must decide how much to offer for sale at the different prices
What is best for the individual seller
A supply schedule is used to help
Table that shows how much a producer will supply at possible prices
Much like a demand schedule
Unlike a demand schedule, quantity goes up when price goes up

6. The Supply Schedule Like the demand schedule, this can be graphed
Forms a supply curve
Will have an upward slope
When you combine multiple supply schedules and graph them, you create a market supply curve

8. The Supply Schedule
Quantity supplied: amount offered for sale at a given price
Change in quantity supplied: change in the amount offered for sale when that price changes

9. Change in Supply
Change in supply is a situation where different amounts are offered for sale at all possible prices in the market
A shift on the supply curve
Different from a change in quantity supplied
The key is that the quantity changes even though the price didn’t
When the old supply and the new supply are graphed together a shift to the right or left will happen
Left=decrease in supply
Right=increase in supply

10. Change in Supply Changes happen for many reasons Cost of resources
Productivity
Technology
Taxes and subsidies
Government payments to encourage or protect certain economic activities
Expectations
Government regulations
Number of sellers

11. Elasticity of Supply
Supply elasticity: measure of how the quantity supplied responds to a change in price
If an increase in price leads to a proportionally larger increase in output=supply is elastic
If an increase in price causes a proportionally smaller change in output=supply is inelastic
If an increase in price causes a proportional change in output=supply is unit elastic

13. Elasticity of Supply The elasticity of supply depends on production
If a producer can adjust quickly supply is likely elastic ( toys, candy, items that can be made quickly)
If a producer cant it is likely inelastic (nuclear power, energy)
Substitutes, ability to delay purchase, or the portion of income do not play a factor on supply elasticity
Only production matters

14. 5.2 The Theory of Production

15. 5.2 Vocab theory of production short run long run
Law of Variable Proportions
production function
raw materials
total product
marginal product
stages of production
diminishing returns

16. Intro
The theory of production generally is based on the short run, a period of production that allows producers to change only the amount of the variable input called labor.
This contrasts with the long run, a period of production long enough for producers to adjust the quantities of all their resources, including capital.

17. Intro
For example, Ford Motors hiring 300 extra workers for one of its plants is a short-run adjustment
If Ford builds a new factory, this is a long-run adjustment.

18. Law of Variable Proportions
In the short run, output will change as one variable input is altered, but others inputs are kept constant
The Law of Variable Proportions looks at how the final product is affected as more units of one variable input or resource are added to a fixed amount of other resources.
Economists prefer that only a single variable be changed at any one time so the impact of this variable on total output can be measured

19. The Production Function
The concept illustrates the Law of Variable Proportions within a production schedule or a graph
It describes the relationship between changes in output to different amounts of a single input while others are held constant.

20. The Production Function
Total product is the total output the company produces: a production schedule shows that, as more workers are added, total product rises until a point that adding more workers causes a decline in total product
Marginal product is the extra output or change in total product caused by adding one more unit of variable input.

21. Three Stages of Production
Satge 1: (increasing returns), marginal output increases with each new worker. Companies are tempted to hire more workers, which moves them to Stage II
Stage 2: (diminishing returns), total production keeps growing but the rate of increase is smaller; each worker is still making a positive contribution to total output, but it is diminishing
Stage 3: (negative returns), marginal product becomes negative, decreasing total plant output