1. Bell Ringer In one minute, list as many types of diet soda as you can. Remember that in addition to different brands, there are different flavors and amounts of caffeine. Ready… set… GO!

2. Objectives 1. Define the law of supply. 2. Explain how prices encourage new businesses to join the market.

3. Before we continue… demand consumers When talking about demand, we are talking primarily about the consumers (their choices about what to buy, when/how much to buy, etc.). supply producers and firms When talking about supply, we are talking primarily about producers and firms. A very important distinction!

4. The Law of Supply Supply is the amount of goods available. The law of supply states that as prices rise, so will the quantity supplied. As the price of a good increases, producers will offer more of it. As the price decreases, they will offer less. The law of supply includes two movements: 1. Firms changing their level of production 2. Firms entering or exiting the market

5. The Law of Supply Law of Supply P S DIRECT RELATIONSHIP

6. Supply Experiment How many hours would you be willing to work in a week if you were paid… $1/hour? $1/hour? $5/hour? $5/hour? $10/hour? $10/hour? $25/hour? $25/hour? $100/hour? $100/hour?

7. The Law of Supply, cont. How does the law of supply affect the quantity supplied? As prices rise, producers will offer more of a good and new suppliers will enter the market… why? Answer: In the hopes of making a profit.

8. Market Entry Rising prices encourage new firms to join the market and will add to the quantity supplied of the good. Take, for example, the music market: When a particular type of music becomes popular, such as disco, grunge, or dubstep, more bands will play that type of music in order to profit from such music’s popularity. This action reflects the law of supply.

9. Market Entry Exercise Working by yourself or with a partner, come up with at least five other examples of firms that have increased production or entered a market when the price of a product rises. Every person/partnership will be required to provide one original response.

10. Bell Ringer/Economic Enigma Oil is a nonrenewable resource. Humanity consumes 87 million barrels of oil per day, and this number continues to climb. However, the world reserves of oil have increased over the past 35 years. (Today’s oil reserves stand at over 1 trillion barrels.) How can this be??

11. Bell Ringer/Economic Enigma How do prices create incentives for producers of natural resources like oil? Increased prices mean increased profit. This drives producers to find more of the resource and develop new technology to extract it. Why do producers develop new technology for extracting resources? Profit New technology = lower costs = higher profit

12. oil In your notes, list the top three countries you think the U.S. imports its oil from.

15. Objectives 1. Interpret a supply schedule and a supply graph. 2. Define supply elasticity. 3. Examine the relationship between elasticity of supply and time.

16. The Supply Schedule/Curve Supply of a good can be measured using a supply schedule or supply curve. A supply schedule/curve shows the relationship between price and quantity supplied for a particular good.

17. Supply Curve Supply Schedule 1. Which direction does a supply curve rise? 2. What are the two variables represented in a supply schedule or supply curve? 3. What is the relationship between Price and Output (Quantity Supplied)?

18. Elasticity of Supply Elasticity of supply, based on the same concept of elasticity of demand, measures how firms will respond to changes in the price of a good. Elastic If the supply for a good/service is elastic, it is very sensitive to price changes Inelastic If the supply for a good/service is inelastic, it is not responsive to price changes.

20. Examples Elastic Supply Cheap products (trinkets, collectables, etc.) Fast food Inelastic Agricultural products Airplane tickets

21. Elasticity in the Short Run In the short run, it is difficult for a firm to change its output level, so supply is always inelastic. For example, many agricultural businesses have a hard time adjusting to price changes in the short term. In the long run, supply can become more elastic.

22. Storyboard Read pg. 114-115 in the textbook, “Elasticity of Supply in the Short Run” and “Elasticity in the Long Run.” Create a two-panel storyboard of the sections. The storyboard should include: Section title 3-5 sentence summary of the section Visual/Illustration Test question

23. Storyboard Example Law of Supply The law of supply states that producers offer more of a good as its price increases and less as its price falls. This is due to the producers’ desire to gain more profit. An example of the law of supply in action would be… Q: How does the law of supply meet at least one of the characteristics of the American free enterprise system?

24. Key Terms supply: the amount of goods available law of supply: producers offer more of a good as its price increases and less as its price falls elasticity of supply: a measure of the way quantity supplied reacts to a change in price

25. Bell Ringer/Economic Enigma In 2014, Walmart reported $485 billion in revenue. However, Walmart makes a profit of only 3-6 cents for every dollar of revenue. In your notes, write a list of possible answers to the question… Where does the rest of the money go??

26. Objectives 1. Analyze the various production costs of a firm. 2. Define the law of diminishing returns.

27. Introduction When thinking about how to maximize profits, firms think about the cost involved in producing additional units of a good. Costs producers take into consideration are: Fixed costs Variable costs Total costs

28. Fixed Costs Fixed costs don’t change with the quantity produced. They include: Property taxes Rent Machinery repair Salaried labor Insurance

29. Variable Costs Variable costs increase as quantity produced increases. They include: Electricity and heating bills Price of raw materials Hourly or commission labor Transportation

30. Total Costs Fixed costs + variable costs = total cost. What causes the total cost to rise as the quantity produced rises? A: Increased variable costs

31. What type of business typically lists its costs in this way? Why would “parts” be variable costs? What is an example of a fixed cost for this business?

32. Business Costs Working with an elbow partner, list 10 business costs for Starbucks Coffee.

33. Diminishing Returns Has there been a time in your life where you’ve put so much effort into doing something that you eventually feel like you’re not getting as much out of it as you’re putting into it? What was it? How did it make you feel?

34. Law of Diminishing Returns The law of diminishing returns refers to a point in time where the level of profits or benefits gained is less than the amount of money or energy invested. In plain English… it simply means sometimes, you can push an idea too far.

35. Law of Diminishing Returns Example Imagine a Nike factory that only has a certain number of square feet of work space and a certain number of machines inside it. You can’t increase the space available or the number of machines without a long, costly delay for construction or installation.

36. Law of Diminishing Returns Example What is the factory owners’ only option left? Current employees can work more shifts or extra workers can be hired. Adding extra man-hours of labor will increase the number of Nike products produced, but only within limits.

37. Law of Diminishing Returns Example After a certain point, such things as worker fatigue, increasing difficulties in supervising the large work force, more frequent breakdowns by over-utilized machinery, or just plain inefficiency due to overcrowding of the work space begin to take their toll. Eventually, the cost of the additional labor exceed the returned revenue for the additional Nike products.

39. Diminishing Returns Review What is the Law of Diminishing Returns? Imagine that our class runs a business where we get paid for each ball we can transfer from one box to another. Let’s see if we can find the optimal number of employees for our business.

40. Rules Every employee must handle every product (Chinese fire drill style). One ball at a time. The product is fragile… No throwing! Dropped product = broken! Only the balls that are in the box when time expires count toward the total output.

41. Key Terms fixed cost: a cost that does not change, no matter how much of a good is produced variable cost: a cost that rises and falls depending on the quantity produced total cost: the sum of fixed costs plus variable costs

42. Why did Hershey’s have to raise the price of their chocolate bars by over 10 percent in 2008? Give an example of another product or company (not chocolate related) that would have to increase its prices because of rising costs of milk.

43. Objectives 1. Explain how factors such as input costs create changes in supply. 2. Analyze other factors that affect supply.

44. Introduction Why does the supply curve shift? Several factors cause the supply curve to shift. These include: Input costs Substitute or related goods Number of suppliers Future expectations of prices Government intervention

45. Shifts in the Supply Curve increase supply right Factors that reduce supply shift the supply curve to the left, while factors that increase supply move the supply curve to the right.

46. Input Costs Any changes in the cost of an input used to make a good will affect supply. A rise in the cost of raw materials, for example, will result in a decrease in supply because the good has become more expensive to produce. The high input costs that dairy farmers pay for feed, labor, and fuel result in higher prices for milk and other dairy products.

47. Substitute or Related Goods If the price of substitute or related goods goes up, the supply of currently supplied goods goes down (and vice versa). Examples: If farmers can make more money producing rice instead of cranberries, what happens to the supply of cranberries? Why don’t cell phone companies make flip phones anymore?

48. Number of Suppliers If more suppliers enter a market, the market supply will rise and the supply curve will shift to the right. If suppliers stop producing a good and leave the market, market supply will decline, causing the supply curve to shift to the left.

49. Future Expectations of Prices What happens to supply if the price of a good is expected to rise in the future? If a seller expects the price of a good to rise in the future, the seller will store the goods now in order to sell more in the future. If the prices of goods are expected to drop in the near future, sellers will earn more by placing goods on the market immediately, before the price falls.

50. Bell Ringer A carton of cigarettes can cost as much as $70! Why do you think cigarettes cost so much?

51. Objectives 1. Identify the ways that the government can influence the supply of goods. 2. Define “subsidies” and how their use directly influences food and other commodity production in the U.S.

52. Government Influences Excise taxes are taxes on the production or sale of certain goods They are collected by the producer and not paid directly by the consumer. This makes them "hidden" in the price of a good/service. Examples? Cigarettes, Alcohol, Gambling, Gas

54. Government Influences Excise taxes are often called “sin taxes” because the government uses them to control or limit certain behaviors (smoking, excessive drinking, gambling, etc.). Do you think “sin taxes” are appropriate?

55. Government Influences, cont. Regulation Indirectly, government regulation often has the effect of raising costs. EX.- When the government regulated the auto industry to cut down on pollution and increase car safety in the 1970s, these regulations led to an increase in the cost of manufacturing cars.

56. Government Influences, cont. Subsidies A government payment that supports a business or market Subsidies generally lower cost, which allows a firm to produce more goods. Reasons for subsidizing products include: To prevent food shortages To protect domestic industries from foreign competition. Examples: Sugar, Oil, and CORN

57. https://www.youtube.com/watch ?v=FFS2cd83kyM “America’s Subsidized Food System”

59. Key Terms subsidy: a government payment that supports a business or market excise tax: a tax on the production or sale of certain goods; sometimes called a “sin tax” regulations: government intervention in a market that affects the production of a good

60. Supply Quiz 1. Demand is to Consumers as Supply is to __________________.

61. Supply Quiz 2. The Law of Supply states that as the price for a good/service goes up, the supply goes _______.

62. Supply Quiz 3. The majority of the United States’ imported oil comes from which country?

63. Supply Quiz 4. As prices rise, producers will offer more of a good and new suppliers will enter the market… why?

64. Supply Quiz 5. Why does the government provide subsidies to certain businesses/industries?

65. Supply Quiz 6. A company trying to increase productivity by hiring lots of workers finds that its productivity actually drops. This is explained by the Law of ___________________.

66. Supply Quiz 7. The Law of Supply expresses a ____________ relationship between Price and Supply.

67. Supply Quiz 8. How do government regulations affect a firm’s production costs?

68. Supply Quiz 9. What are “sin taxes” and why does the government implement them?

69. Supply Quiz 10. True or False: Property taxes, rent, and salaried labor are all examples of fixed costs for a business.