1. Ch 5 Economics
Supply

2. To Earn an “A” on Notes: You MUST DO ALL OF THE FOLLOWING:
Have a complete set of notes:
Contain all of the skeleton AND the details
Explain concepts, graphs, charts, …
Draw conclusions
Fill in all details
Answer all questions
All answers MUST CONTAIN THE TOPIC
Have correct and complete explanations and answers
Be organized:
Topics are separated and underlined/highlighted
Supporting details are indented under the topic
Leave a blank line between chunks of info.

3. Section 1 Understanding Supply
Students will explain:
The Law of Supply
Interpret a Supply Graph using a Supply Schedule
The relationship between elasticity of Supply and Time.

4. Law of Supply Supply is the ___________________________ Law of Supply:
_________________________________________.
Law of Supply:
Why does Supply drop when Prices drop?

5. How Much to Produce? Higher Production
Pgs 101 & 102.
Suppliers have to find the right amount of supply
It has to be enough to meet Demand
Because they are not sure of How Much Demand there is, Suppliers tend to produce more
As the price of a good increases, Producers SUPPLY MORE.

6. Three Reasons Why Supply Increases When Price Increases
As the Price of a Good Increases:
Some Suppliers will switch to making that Good
Because it means higher Profits
Suppliers will produce MORE of that Good
Because they think they can sell MORE
New Firms will enter the Market
because they think there is enough Demand to support MORE FIRMS in the Market

7. Supply Schedule
Shows the relationship between Price and Quantity Supplied
Shows ONLY:
Price
Quantity Supplied
Two Types:
Individual Suppy Schedule (1 supplier)
Market Supply Schedule
ALL OF THE SUPPLIERS IN THAT MARKET

8. Market Supply Curve Is a visual representation of Supply
Is created just the way that we created a Market Demand Schedule EXCEPT THAT IT IS FOR SUPPLY NOT DEMAND
You use a Market Supply Schedule to create a Market Supply Curve

9. Elasticity of Supply Measure how Supply Changes in Response to:
Price
Over Time
Depends on the Good or Service
How long it takes to make the good

10. SUPPLY and TIME
For Example:
The Price of Apples Increases,
Suppliers WANT to PRODUCE MORE
HOWEVER, They Can’t Change Supply Quickly
It is YEARS between the time you plant an apple seed UNTIL THE TREE BEARS FRUIT.
TIME is the BIGGEST DETERMINANT OF ELASTICITY OF SUPPLY
But there are OTHER VARIABLES, TOO!

11. Supply and Time A Supplier who CAN CHANGE Suppliers who CANNOT CHANGE
Production Output Quickly will have a
MORE ELASTIC SUPPLY CURVE
Ex: YOU write in an example of a Supplier Who Can change Supply in the Short Run
Suppliers who CANNOT CHANGE
Production Output in the Short Run will have a
LESS ELASTIC SUPPLY CURVE
Ex: YOU write in an example of a Supplier Who Can change Supply in the LONG Run

12. Elastic Supply
The MORE ELASTIC THE SUPPLY, the MORE SUPPLY WILL REACT TO A CHANGE IN PRICE.
A SMALL Price Change CAUSES a LARGER SUPPLY CHANGE

13. Q & A What is the Elasticity of Supply for an Orange Grower?
Write ONE of the following as answers:
Elastic Supply
Unitary Elasticity of Supply
Inelastic Supply
What is the Elasticity of Supply for
an Orange Grower?
A Clothing Manufacturer
A Nail Salon
Automobile Manufacturer

14. Section 2 Costs of Production
Copy the STGs from the whiteboard or from the Objectives in your book:
How to firms decide who much labor to hire to produce a certain output (maximum output usually)
The Production Costs of a Firm
How a Firm Sets Output
How to decide When to Shut Down an Unprofitable Firm

15. How Much Labor to Hire? A Firm needs enough workers to reach
a Target Output.
Use Pg. 109, Figure 5.6 to answer questions on the next few slides. Leave plenty of room for answers.
NOTE: Each Worker Added is increasing the Overall Output of Beanbags. The increase in Output due to the Additional Worker is called
Marginal Product of Labor
1. At what point (# of workers) is Output Maximized (highest # of beanbags)?

16. How Much Labor to Hire?
2. Increasing Marginal Returns is maximized at _________ workers. 3. Marginal Product of Labor declines at ________workers. At this point, the firm is experiencing Diminishing Marginal Returns

17. How Much Labor to Hire?
Negative Marginal Returns occurs when the ____________th worker is hired.
Read Pg “Diminishing Marginal Returns” AND “Negative Marginal Returns”. Explain why output eventually decreased when additional workers were hired.

18. Production Costs
Pgs
Total Costs = Fixed Costs + Variable Costs
TC = FC + VC
Fixed Costs – Does NOT Change. Give Examples:

19. Production Costs Variable Costs – Give Examples:
Rise or fall with output.
Also known as the Operating Cost
The higher the output, the more you will use of a Resource.
Give Examples:

20. Marginal Cost (MC) Pgs 111-112
The additional cost to produce ONE MORE UNIT OF A GOOD OR SERVICE
Firms use this to decide whether to produce one more unit or to hire one additional worker

21. Setting Output Marginal Revenue (MR) AND Marginal Cost (MC)
Used to decide Optimal Output

22. When to stop producing additional units?
When Marginal Revenue = Marginal Cost
MR = MC OR
To MINIMIZE LOSSES OR
Firms WILL PRODUCE MORE UNITS EVEN THOUGH THEIR PROFIT IS DROPPING BECAUSE THEY USE THE ADDITIONAL REVENUE TO PAY TOWARDS FIXED COSTS .
Pg 111, Figure 5.9: Beanbags 11 and 12.

23. Q & A What do you notice about Marginal Cost and Variable Cost?
Pg 111, Figure 5.9. Copy each question and answer it.
What do you notice about Marginal Cost and Variable Cost?
What is the Total Cost even if 0 beanbags are produced?
What could be the source of the Cost? What type of Cost is this?
Why is MR always $24?
What is Optimal Output? (Where Profit is highest?)

24. Section 3 Changes in Supply
STGs: Read pg 116 Objectives & write them as Short Term Goals of what you will be able to explain at the end of this section.

25. What variables affect Supply?
There are several.
TIME IS THE MOST IMPORTANT VARIABLE.

26. Input Costs The cost to make the good When the Input Cost:
Raw materials such as beans or cotton fabric
Machinery
Labor
When the Input Cost:
Increases:
Supply will ____________________________
Decreases:

27. Input Costs (Continued)
Technology
When a new technology comes along or a faster way of producing a good, the production costs often are decreased. (After the cost of initial installation).
Tends to _____________________ Supply
Shifts the Supply Curve to the __________ (left or right)
Draw this Change in the Supply Curve

28. Is your Supply Curve correct?
Look at Pg 117, Figure 5.12
Did your Supply Curve shift to the Right to show the INCREASE in Supply?
If Supply DECREASES, draw what that does to the Supply Curve. (Draw a new Supply Curve).

29. Government’s Influence
Subsidies
Define:
Purpose
To ensure that a good is available
Usually something that is considered a staple or important to daily life
Direct Means to Affect Supply
Examples:
What is the impact on the Supply Curve?
Graph it. Remember to label both axes and add a title.

30. Government Influence (Continued)
Excise Taxes
Define:
Purpose
Direct Means to Affect Supply
Examples:

31. Government Influence (Continued)
Regulations
Define
An Indirect Means to affect Supply
Purpose
Examples:

32. Supply in the Global Economy
Imports- made outside the nation
Import Restrictions
Tariffs – a tax on imported goods
Raises the cost and thus price of imported goods
Attempts to protect native industries
Tends to Decrease Supply a little
Shifts Supply Curve to the _________________ (left or right)

33. Supply in the Global Economy (Continued)
Ban on Imports
What affect does a Ban have on Supply?
Increase or Decrease?
Shift to the ______________________ (left or right)

34. Future Expectations of Prices
If you are a soybean farmer and you expect the Prices to Increase, what will you do with your current Supply?
This mainly applies to Perishable Goods that can’t be stored very long. CORRECTION!!! 
You can ONLY store GOODS FOR A WHILE THAT ARE NON-PERISHABLE.
For example, SOYBEANS CAN BE STORED, but FRESH TOMATOES have a short shelf-life and CANNOT BE STORED.
If Prices are expected to Decrease?

35. Number of Suppliers What is the Affect on Supply when…
New Suppliers enter the Market?
Increase or Decrease
Supply Curve Shifts _____________ (left or right)
Suppliers leave the Market?

36. How Many Factors Affect Supply?
Go back through your notes and tally (add them up).

37. The End