1. Explorations in Economics
Alan B. Krueger & David A. Anderson

2. Story of Corn What does corn do? Playstation example Popcorn
Feeds animals
Produce ethanol
Every state produces it but Alaska and Hawaii.
From 2005 to 2008, price goes from 2$ to 6$. What happened?
Firms began to grow corn and stopped growing other goods
Playstation 3 vs. Older Playstation: 249 vs. 600? What caused the lower pricing? Technology, competition among sellers, and cost of inputs.

3. The Draw of High Coffee Prices
Starbucks rise in price has made what happen?
McDonalds
Dunkin Donuts
Caribou Coffee
4/20/2017
Chapter 5-Mods 13, 14 & 15

4. MODULE 13: Understanding Supply
KEY IDEA:
Producers respond to price changes, offering more goods for sale when prices increase and fewer goods when prices decrease.
OBJECTIVES:
To explain the concept of supply and the law of supply.
To explain the relationship between a supply schedule and a supply curve.
To identify the factors that cause the quantity supplied to be more or less responsive to price changes.
Point out that this chapter is about supply—firms that sell goods and services. Thinking like a buyer and thinking like a seller are different. Buyers want to maximize their satisfaction; sellers want to earn the greatest profit.

5. THE QUANTITY SUPPLIED
Profit is the total revenue a firm receives from selling its product minus the total cost of producing it. The quantity supplied is the amount of a good that firms are willing to supply at a particular price over a given period of time.
Point out that profit motivates firms to supply goods and services consumers actually want. Firms what to earn as much profit as they can.
Higher prices encourage firms to produce more because profit is likely.

6. THE LAW OF SUPPLY
According to the law of supply, an increase in the price of a good leads to an increase in the quantity supplied. (example- Tutoring in the community)
Use the graph to show how price increases the QUANTITY supplied not the supply.
Ask students why firms are willing to produce more of a good when its price increases.
Remind students that the law of supply applies under the ceteris paribus condition.

7. What do the Law of Demand and Law of Supply mean
Law of demand- P up, qd down; P down, qd up
Law of supply- P up, qs up; p down, qs down
What do you notice about the two laws? They are opposite and move in different directions. Demand is an inverse relationship between P and QD. Supply is a direct relationship between P and QS.
Why do you think that is?
Suppliers are worried about making money and consumers are worried about saving money.
4/20/2017
Chapter 5-Mods 13, 14 & 15

8. THE SUPPLY SCHEDULE AND THE SUPPLY CURVE
The supply schedule for a good is a table listing the quantity of the good that will be supplied at specified prices.
Quiz students by asking what happens to quantity supplied when the price increases? Why?

9. THE SUPPLY SCHEDULE AND THE SUPPLY CURVE
A firm’s supply curve is a graphical representation of the supply schedule, showing the quantity the firm will supply at each price.
Show students how the schedule is plotted on the graph. Note the direct relationship between price and quantity shows as an upsloping line. Compare that to the downsloping demand curve.

10. THE MARKET SUPPLY CURVE
Point out the sum of the two firms willingness to supply makes up the quantity supplied for the market. This is the same way we created the Market Demand Schedule and Curve.

11. THE MARKETS WITH SUPPLY CURVES
There is perfect competition in a market when there are many firms selling identical goods, firms are free to enter and exit the market, and consumers have full information about the price and availability of goods.
Explain how perfect competition is rare. The closest markets would be in agriculture and that is why they advertise as a group. Example: The dairy farmers of Wisconsin or the Eat Beef! we see on TV.

12. THE MARKETS WITH SUPPLY CURVES
There is perfect competition among firms when:
1. Every unit of the good sold in the market is identical, regardless of which firm is selling it.
2. The good is produced by many firms, none of which is large enough to influence the price of the good.
3. New firms that want to supply the good are free to enter the market, and existing firms that want to stop supplying it are free to exit the market.
4. Consumers are aware of the price charged by the various firms and have the opportunity to buy from whichever firm they choose.
Identical products like corn or wheat
NO price control—Small firms in very large markets with many, many sellers; they are price takers who accept the market price.
NO barriers to entry or exit.
Perfect information for buyers means awareness of the market price.

13. ELASTICITY OF SUPPLY
The elasticity of supply is a measure of the responsiveness of the quantity supplied to price changes, calculated by dividing the percentage change in the quantity supplied by the percentage change in price.
Focus on the term responsiveness.
Recall that demand elasticity measured buyer responsiveness.

14. Elasticity of Supply
Discuss elasticity from the point of view of the seller.
Students should be challenged to explain the examples here and think of other examples..

15. Elasticity of Supply
Try to discuss elasticity from the point of view of the seller.
Students should define the term “time horizon” and then apply to this page.

16. MODULE 13 REVIEW What is… A. Profit? B. Quantity supplied?
C. Unit- elastic supply?
D. Elastic supply?
E. Supply schedule?
F. Supply curve?
G. Market supply curve?
H. Elasticity of supply?
I. Law of supply?
J. Inelastic supply?
K. Perfect competition?
Have students add the terms to their vocabulary notebook.

17. MODULE 14: SHIFTS OF THE SUPPLY CURVE
KEY IDEA:
The supply curve can shift because of changes in the cost of inputs, government policies, the number of firms, technology, weather, and expectations about future prices.
OBJECTIVES:
To differentiate between a movement along the supply curve and a shift of the supply curve.
To explain how changes in factors other than price cause the supply curve to shift.
To recognize which types of changes cause the supply curve to shift to the left or to the right.
Note that this module using the same thinking process of the shifts of the demand curve—movement along the line or a shift of the supply curve..

18. WHEN OTHER FACTORS CHANGE
A shift of the supply curve is the result of a change in the quantity supplied at every price, not to be confused with a movement along the supply curve, which is the result of a change in the price.
Be sure to explain that price changes the quantity supplied but now we focus on what shifts the curve.
Using the Supply 1 curve what happens to quantity supplied when we move from point A to point B?
Using the Supply 1 and Supply 2 curves what happens to quantity supplied when we move from point A price on Supply 1 to the same price on Supply 2?

19. FACTORS THAT SHIFT THE SUPPLY CURVE
The cost of inputs
Government policies
Taxes
Regulations
Subsidies
The number of firms
Technological change
Natural disasters and weather
Expectations about future prices
Use the factors on the left and have students create TWO sentences for each. One sentence to explain how supply increases and one sentence for how supply decreases.

20. FACTORS THAT SHIFT THE SUPPLY CURVE
The cost of inputs
Government policies
Taxes
Regulations
Subsidies
The number of firms
Technological change
Natural disasters and weather
Expectations about future prices
Use the sentences from the previous activity to explain how the price changes.
Be sure to spend a couple of class periods having the students practice the mechanics of changes to supply.

21. MODULE 14 REVIEW What is… A. Change in supply?
B. Technological progress?
C. Change in the quantity supplied?
D. Inventory?
E. Subsidy?
Have students add the terms to their vocabulary notebook.

22. MODULE 15: PRODUCTION, COST & THE PROFIT- MAXIMIZING OUTPUT LEVEL
KEY IDEA:
Firms can maximize their profit by producing the quantity that equates marginal revenue and marginal cost.
OBJECTIVES:
To explain the components of total cost.
To identify the condition for profit maximization.
To explain how a profit-maximizing entrepreneur decides whether to open a new firm and whether to shut down an existing firm.
This module is about the decisions of how much to produce. Recall that this is one of the basic economic questions from Chapter 2.

23. UNDERSTANDING PRODUCTION
The short run is the period of time during which the quantity of at least one input is fixed. The long run is the period of time in which the quantities of all inputs are variable.
This is important because it determines the use of space in the short run.
Use this example.
If a restaurant wants to serve more people in the short run, it buys more advertising, and more food to prepare. More labor is hired. In the long run, if business is good, they can build a bigger restaurant or more locations. They can add more stoves, and tables. Long run means that capital purchases can increase production, but short run means only labor, and materials.

24. UNDERSTANDING PRODUCTION
A production schedule indicates the inputs needed to produce different quantities of output.
Move through the table and demonstrate how the production function is created from the data.
Ask at what point do we stop hiring workers? 7 Why? The eighth worker causes output to decrease.

25. UNDERSTANDING PRODUCTION
The marginal product of labor is the amount by which total output increases when one more worker is hired. Diminishing marginal productivity describes the decrease in the marginal product of a variable input, such as labor, as more and more of it is combined with a fixed input, such as equipment.
Too many workers can actually reduce output. Give examples of volunteers clogging up a kitchen or another example.
Point out how the marginal product column is determined; for the second, see where the production function is declining. This reinforces the idea visually that the point of diminishing returns is a downturn in the graph.

26. THE COST OF PRODUCTION
Fixed cost is the cost of inputs that do not vary with the amount of output produced.
Variable cost is the cost of inputs that do vary with the amount of output produced.
Challenge students to think of fixed costs of Blade Runner Lawn Moving Company. mower purchased, tools, storage for equipment
Challenge students to think of variable costs of Blade Runner Lawn Moving Company. wages to labor, gas for mowers

27. THE COST OF PRODUCTION
Marginal cost is the additional cost of producing one more unit of output. Marginal cost is calculated as the change in total cost divided by the change in output.
Make sure you focus on the CHANGE in total cost for marginal cost.
Go through column 6 and demonstrate the calculation of marginal cost.

28. PROFIT MAXIMIZATION AND MARGINAL ANALYSIS
The profit maximizing output level is the amount of output that gives a firm as much profit as possible.
Marginal revenue is the additional revenue a firm receives from selling another unit of output.
Start to tell them that a profit maximizing firm looks for where MR=MC.
1. how is marginal revenue calculated? For every lawn, $20 is charged.
2. Total Revenue is Price x output
3. Total Revenue — Total cost = profit.

29. PROFIT MAXIMIZATION AND MARGINAL ANALYSIS
Firms will produce where MR=MC. That is the profit maximizing output.
Stress that the MR=MC profit maximizing level of output (24 lawns per day) is the same output where the maximum profit is earned ($100).

30. MODULE 15 REVIEW What is… A. Short run? B. Marginal product of
labor?
C. Long run?
D. Marginal revenue?
E. Law of diminishing
returns?
F. Fixed cost?
G. Variable cost?
H. Profit- maximizing
output level?
I. Total cost?
J. Output?
K. Diminishing marginal
Productivity?
L. Cost minimization?
Add these terms to the vocabulary notebook.