Presentation on theme: "Change in Supply Schedule Economist use the word to supply to refer to the relationship between price & quantity suppliedEconomist use the word to supply."— Presentation transcript:
Change in Supply Schedule Economist use the word to supply to refer to the relationship between price & quantity suppliedEconomist use the word to supply to refer to the relationship between price & quantity supplied The # of goods offered at a specific price is called the quantity supplied at that priceThe # of goods offered at a specific price is called the quantity supplied at that price The rise or fall in the price of a good will cause the quantity supplied to change but not the supply scheduleThe rise or fall in the price of a good will cause the quantity supplied to change but not the supply schedule The seller will just move from one row to another but when a factor other than price affects output a new supply scheduleThe seller will just move from one row to another but when a factor other than price affects output a new supply schedule
Price As price falls… Supply Quantity supplied falls Price As price increases… Supply Quantity supplied increases law of supplyAccording to the law of supply, suppliers will offer more of a good at a higher price.
$.501,000 Price per slice of pizzaSlices supplied per day Market Supply Schedule $1.001,500 $2.503,000 $2.002,500 $1.502,000
Market Supply Curve Price (in dollars) Output (slices per day) Supply
STONER 6 things that will cause a change in supply.
STONER S ubsidies A government payment that supports a business or market. Taxes Excise Tax = Sometimes called a Hidden Tax, it is a tax on the production or sale of a good.
STONER T echnology
STONER O ther goods prices input costs (1) Raw materials (2) Machinery (3) Labor
STONER N umber of Suppliers Imports and Exports
STONER E xpectations of future prices
STONER R egulation (Gov.t)
Costs Of Production How does a supplier decide how much to produce? How does a firm decide how many workers to hire?
In economic terms Marginal simply means additional Marginal Product Of Labor = output change from hiring one additional worker
Marginal Product of Labor Labor (number of workers) Output (beanbags per hour) Marginal product of labor A Firms Labor Decisions Business owners have to consider how the number of workers they hire will affect their total production. The marginal product of labor is the change in output from hiring one additional unit of labor, or worker –
Marginal Cost = the additional cost of producing one additional unit Marginal Revenue= the additional revenue from producing one additional unit
Increasing, Diminishing, and Negative Marginal Returns Labor (number of workers) Marginal Product of labor (beanbags per hour) –1 –2 –3 123 Increasing marginal returns Increasing marginal returns occur when marginal production levels increase with new investment. Diminishing marginal returns occur when marginal production levels decrease with new investment Diminishing marginal returns Negative marginal returns occur when the marginal product of labor becomes negative. 89 Negative marginal returns Marginal Returns
Production Costs A fixed cost is a cost that does not change, regardless of how much of a good is produced. Examples: rent and salaries Variable costs are costs that rise or fall depending on how much is produced. Examples: raw materials, some labor costs. The total cost equals fixed costs plus variable costs. TC = FC + VC The marginal cost is the cost of producing one more unit of a good.
Setting Output Production Costs Total revenue Profit (total revenue – total cost) Marginal revenue (market price) Marginal cost Total cost (fixed cost + variable cost) Variable cost Fixed cost Beanbags (per hour) $ –36 – $ $24 24 $ $ $ $36 36 Marginal revenue (+ one more unit) is usually equal to price. To determine the best level of output, firms determine the output level at which marginal revenue is equal to marginal cost.