Presentation on theme: "Definition: The various quantities of a good or service that producers are willing and able to sell at all prices at a particular time. SUPPLY."— Presentation transcript:
Definition: The various quantities of a good or service that producers are willing and able to sell at all prices at a particular time. SUPPLY
WHY DO PRODUCERS PRODUCE? Two Words. Profit Motive. **Remember the invisible hand? Demand drives Supply…
LAW OF SUPPLY As P ↑, Q S ↑ As P ↓, Q S ↓ Opposite of the law of demand Why? Example…
Mr. Bull’s Soccer Lessons How many lessons might I give if I was able to charge….. $5/hr? $15/hr? $40/hr? As I am able to charge more, production becomes more valuable relative to other tasks. What is my opportunity cost of soccer lessons?
THE LAW OF SUPPLY Reasons for a Change in Quantity Supplied: (Always associated with a change in a product’s own price) 1.Assuming firms’ costs are constant, at higher prices, producers make more profits. - Economies of Scale – as businesses grow, production costs tend to shrink 2.When prices rise, firms substitute production of one good for another. -Aunt Jemima
SUPPLY SCHEDULE/CURVE Notice… opposite of Demand curve Upsloping Individual Supply vs. Market Supply
Change in quantity supplied (a movement along the curve) Change in Quantity Supplied: Movement along the Supply Curve Price (per unit) Quantity supplied (per unit of time) S0S0 $15 A 1,2502,300 B
SHIFTS IN SUPPLY VERSUS MOVEMENTS ALONG A SUPPLY CURVE If the amount supplied is affected by anything other than a change in price, there will be a shift in supply.
Shift in Supply Price (per unit) Quantity supplied (per unit of time) S0S0 Shift in Supply (a shift of the curve) S1S1 $15 AB 1,2502,300
7 REASONS FOR A CHANGE IN SUPPLY 1. Change in the cost of inputs Land, labor, capital 2. Change in Productivity 3. Change in Technology Ask Henry Ford… 4. Change in Number of Sellers Duh.
7 REASONS FOR A CHANGE IN SUPPLY 5. Change in Taxes or Subsidies Excise tax 6. Change in Market Expectations Future prices/demand/conditions 7. Change in Government Regulation
PROFIT MAXIMIZATION Profit = Total Cost = Fixed Cost + Variable Cost Fixed vs. Variable… examples? Fixed – rent, loan payments, utilities Variable – labor, raw materials Firms want TR > TC… But how do they maximize this profit? MARGINAL ANALYSIS!!!! Total Revenue - Total Cost
PROFIT MAXIMIZATION Marginal Cost = ∆ Price of Inputs / ∆ Output MC = ∆ Variable Cost/ ∆ Quantity Marginal Revenue = Price Profit Maximization: As long as MR > MC, producers will continue to produce. Reach the point where MR = MC Production Function.notebook
TEST TOPICS Definition/Law of Supply Supply Curve Market Supply Change in Supply 7 factors Elasticity of Supply 3 factors 3 Stages of Production Profit Maximization MR = MC