1. SUPPLY

2. Jump Start Chapter 5 section 1
The Law of Supply states that
The quantity supplied varies inversely with its price
The quantity supplied irregularly with its price
The quantity demanded varies inversely with its price
The quantity supplied varies directly with its price
All of the following can cause an increase in supply EXCEPT:
A decrease in the cost of inputs
Fewer sellers in the marketplace
An increase in productivity
A change in taxes or subsidies
Which product is likely to have the most elastic supply curve?
Ice cream cones
Automobiles
Ships
Dishwashing machines
The supply curve is
Downward sloping
Level
Upward sloping
Irregular
Increased government regulations can cause the supply curve to
Shift to the left
Shift to the right
Increase
Decrease

3. The Law of Supply
The quantity supplied, or offered for sale, varies directly with its price.
If prices are high, suppliers will
have more quantities for sale.
If prices are low, suppliers
will offer smaller quantities for sale.
price supply
high high-much
made
Principle that suppliers will normally offer more for sale at high prices and less at lower prices
price supply
low low-few
made

4. What is Supply?
Supply is the quantities that would be offered for sale and all possible prices that could prevail in the market.
is defined as the amount of a product that would be offered for sale at all possible prices that could prevail in the market

6. SUPPLY CURVES
individual- 1 business supply curve
individual- 1 business supply curve
business1 + business 2 = market
Analysis of supply by economists

7. Supply Curve Individual Curve Market Curve Economist analyze supply
Illustrates how the quantity that a producer makes changes. Why: Depends on the price that will prevail in the market (what the consumer will pay)
Market Curve
Illustrates the quantities and prices that all producers will offer in the market for any product or service
Economist analyze supply
by listing quantities and prices in a supply schedule
Forms supply curve with and UPWARD slope

8. Change in Quantity Supplied
The amount of goods that producers
bring to the market at any given price
Change in Quantity Supplied;
The change in the amount offered
for sale in response to a change in price

9. A change in quantity supplied will move along the original curve.

10. Change in Supply When suppliers offer different amounts
of products for sale
at all possible prices

11. A change in overall supply will cause the Supply curve to shift.
Shift left: decrease in supply
Shift right:
Increase in supply

13. Change in Supply..WHY? 1. Cost of inputs 2. Productivity 3. Technology
4. Taxes and subsidies
5. Expectations
6. Government Regulations
7. Number of Sellers

14. 1.Cost of inputs
Change in Supply..WHY?
Change in cost of land, labor and capital
If price of input increases, producers produce less quantity. ( S ___ )
If price of input decreases, producers produce more quantity. (S ___)

15. 2. Productivity
Change in Supply..WHY?
Same input (workers)
Motivate workers, train workers better = more output (supply)
If productivity increases, producers produce less quantity. ( S ___ )
If productivity decreases, producers produce more quantity. (S ___)

16. 3. Technology
Change in Supply..WHY?
Buy new machine, lowers cost of producing supply.
If technology decreases cost of production,the
producers make more quantity. (S ___)
This is a shift to the _________

17. 4. Taxes and Subsidies
Change in Supply..WHY?
If business pays more taxes,
then business will make _____ Supply will_____ (shift to the _____ S __)
If business pays less taxes
then business will make ______Supply will ____ (shift to the ____ S __)

18. 5. Expectations
Change in Supply..WHY?
Producers (businesses) think about the
future.
IF they think price will go up, then
they produce (make) ___________ S2
IF they think price will go down, then
they will produce (make)_________S1
Summer
Price
$99.00
Winter coming soon!
Price
$125.00

19. 6. Government regulations
Change in Supply..WHY?
Sometimes the Government regulates (controls )business activity.
If the Government wants to lower standards, this will decrease the cost of making cars. Then carmakers will
produce (make)_______ S2
If the Government wants better emission standards, this will increase the cost of making cars. Carmakers will then produce (make)_______ S1

20. 7. Number of Sellers
Change in Supply..WHY?
In the market for any product there are businesses that compete for customers.
If more companies enter the market for a product then supply will_______ S2
If companies leave the market for a product then supply will_______ S1

21. Supply Elasticity: a measure that shows how quantity supplied responds to a change in price
45°angle

22. Elasticity of Supply
Supply Elasticity: a measure that shows how quantity supplied responds to a change in price
Elastic
Small increase in price leads to a larger increase in output—supply
Inelastic
Mall increase in price causes little change in supply
Unit Elastic
A change in price causes a proportional change in supply

23. Determinants of Supply Elasticity
How quickly a producer can act when a change in price occurs:
Adjust quickly = elastic
Complex/advance planning = inelastic
Factor of Substitution:
Easy = elastic
Difficult = inelastic

24. Chapter 5 section 1 Vocabulary
Amount that producers bring to the market at any given price
Measure of the way in which quantity supplied responds to a change in price
A graph showing the various quantities supplied at each and every price that might prevail in the market
The amount of a product that would be offered for sale at all possible prices that could prevail in the market
A government payment to an individual, business, or other group to encourage or protect a certain type of economic activity
Supply
Quantity supplied
Supply curve
Supply elasticity
Subsidy

25. The Theory of Production

26. Jump Start Chapter 5 section 2
All of the following are stages of production EXCEPT:
Increasing returns
Diminishing returns
Equaling returns
Negative returns
The period of production that allows producers to change only the amount of the variable input called labor is:
The long run
The short run
The production function
A stage of production
A production function shows
Changes in output in response to changes in input
Changes in input that result from changes in output
The optimum level of production
The optimum level of the four factors of production
In what order do the three stages of production occur?
Negative returns, diminishing returns, increasing returns
Diminishing returns, increasing returns, negative returns
Increasing returns, diminishing returns, negative returns
Increasing returns, negative returns, diminishing returns
The stages of production are based on
The way total product changes over time
The way marginal product changes as variable inputs are added
The way inputs change in response to business decisions
The way output changes independent of input

27. The Production Function
Concept that describes the relationship between changes in output to different amounts of a single input while others are constant

28. The Production Function
Total product is the total output the company produces
Total Product Rises
As more workers are added, total product rises until a point that adding more workers causes a decline in total product
Total product Slows
As more workers are added output continues to rise = it does so at a slower rate until ti can grow no further
More workers “get in the way”

29. The Production Function
Marginal Product is the extra output or change in total product caused by adding one more unit
Product output
increases
Product output decreases
Product output negative

32. Three Stages of Production
Stage I: increasing returns
Marginal output increases with each new worker
Companies are tempted to hire more workers (moves them to stage II)
Stage II: 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 diminishing)
Stage III: negative returns
Marginal product becomes negative
Decreasing total plant output

33. Chapter 5 section 2 Vocabulary
Production function
Total product
Marginal product
Concept that describes the relationship between changes in output to different amounts of a single input while other inputs are held constant
Total output produced by a firm
The extra output or change in total product caused by the addition of one more unit of variable output

34. Cost, Revenue and Profit Maximization

35. Jump Start Chapter 5 section 3
Cost and benefit decision making that compares the extra benefits to the extra cost of an action is called?
Marginal revenue
Marginal cost
Marginal analysis
Marginal output
The total cost of production is determined by
Adding fixed cost and variable cost
Adding marginal and fixed cost
Multiplying fixed and variable cost
Multiplying marginal and fixed cost
All of the following are examples of variable costs EXCEPT:
Labor
Freight
Interest payments on bonds
Electricity
If a business’s fixed cost are large relative to its variable cost, it is likely to
Be more profitable than a firm whose fixed costs are small relative to variable cost.
Produce in stage III of the production function
Produce durable goods rather than service
Operate longer hours than a firm whose fixed cost are small relative to variable cost
Profit is maximized when
Marginal cost is less than marginal revenue
Marginal cost is equal to marginal revenue
Marginal cost is greater than marginal revenue
Marginal cost is growing at the same rate as marginal revenue

36. What kinds of cost do you have to consider?
Fixed Cost – the cost to have a business
with or without production
Salaries ($ you pay workers-employees)
Rent
Property Taxes
Variable Cost – cost that does change when the business rate of operation or output changes
Electric power
Shipping charges

38. What kinds of cost do you have to consider?
Variable Cost – cost that does change when the business rate of operation or output changes
Electric power(if closed use little power,
if open, use more power)
Shipping charges
Total Cost – Sum of the fixed + variable costs
Marginal Cost – Extra cost when one more of something added (ex. Worker)

39. Applying Cost Principles
Self-service Principles
Gas station is an example of high fixed cost with low variable cost
Ration of variable to fixed cost is low
E-Commerce
An industry with low fixed cost

40. Measure of Revenue Total revenue = Marginal Revenue =
Number of units sold multiplied by the average price per unit
Marginal Revenue =
The extra revenue connected with producing and selling an additional unit

41. Marginal Analysis
Marginal Analysis comparing the extra benefits to the extra cost of a particular decision
Break-even point is the total output or total product the business needs to sell in order to cover its total cost

42. Marginal Analysis Businesses want
# of workers and level of output that generates max. profits
Profit-maximizing: quantity of output is reached when marginal cost and marginal revenue are equal

43. Chapter 5 Section 3 Vocabulary
Fixed cost
Marginal cost
Variable cost
E-commerce
Total revenue
Cost that a business incurs even if the plant is idle and output is zero
Extra cost incurred when a business produces one additional unit of product
Cost that changes when the business rate of operation or output changes
Electronic business or exchange conducted over the internet
The number of units sold multiplies by the average price per unit