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Chapter 5 SUPPLY

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1 Chapter 5 SUPPLY

2 Supply Supply – the amount of goods available Law of Supply – the higher the price, the larger the quantity produced Quantity Supplied – how much of a good is offered for sale at a specific price A3338CFA7E&index=9&feature=plcp

3 Supply Schedule Supply Schedule – table that demonstrates a relationship between price and quantity supplied for a specific good

4 Market Supply Schedule All the supply schedules of individual firms add together Shows relationship between prices and total quantity supplied by all firms in a particular market

5 Supply Graph Graphical representation of a supply schedule Illustrates the law of supply Any change in price moves you along the curve

6 Changes in Supply Any factor other than price affects a firms ability to supply Curve will shift Bad for business, supply curve shifts left Increased costs Good for business, supply curve shifts right Decreased costs

7 Factors Affecting Supply 1. Number of sellers : more sellers means greater supply 2. Expectations - will the economy grow or weaken? 3. Technology – lowers costs 4. Input prices –if input costs rise, supply decreases as profits fall

8 Government Intervention Govt can affect costs and supply through policy Subsidies : govt payment to support a business or market Taxes: increase or lower costs Regulation: increases costs

9 Supply in the Global Economy Global supply depends on the policies and stability of foreign countries External situations in other countries Disrupt supply chains Import restrictions reduce supply


11 Elasticity of Supply Measure of how suppliers respond to a price change Elasticity – supply is very sensitive to price changes Inelastic – supply is NOT sensitive to price changes

12 Elasticity of Supply A suppliers elasticity is typically dependant upon their ability to react, not so much their willingness. The greatest factor that affects a producers elasticity is time horizon According to the law of supply a producer wants to supply more if prices rise, but can they?



15 Costs of Production How many workers should a firm hire? How much should a firm produce? How productive is each worker? Marginal Product of Labor – change in output per worker Increasing Marginal Returns – more output per worker (specialization) Decreasing Marginal Returns – the point at which adding more workers decreases returns

16 Production Costs Fixed costs – have to be paid no matter whether a firm produces or not rent, a loan Variable costs – may change with the amount produced (electric bill) – raw materials/labor Total Cost – fixed + variable costs Operating Cost - the daily cost running a business

17 Output Profit = total revenue minus total costs MR=MC Optimal level of output to ensure profit Firms will produce until the marginal cost equals the marginal revenue guaranteeing that no more profit can be made Marginal revenue – additional income from producing one more unit Marginal cost – additional cost from producing one more item.

18 MR=MC Because costs rise as firms increase output, a firm must find where the curves meet

19 Equilibrium & Stability When the supply and demand curves meet or intersect the market reaches a clearing price or equilibrium It is considered stable and balanced At this point the quantity that buyers demand is equal to the quantity producers supply



22 Ceilings and Floors Price ceiling is a legal maximum price that can be charged Controls on Rent Binding is below equilibrium Price Floor is a legal minimum price Minimum wage Binding is above equilibrium Are these tactics beneficial? kG8pAQ&feature=related

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