Please take out your Unit 2 Openers Tuesday, February 8 th Supply

Opener

Opener 2000: : : : : : : : : : : 106 Average NBA salary: 1997: $2 million/year 2006: $4 million/year 2010: $5.84 million/year Foreign-Born NBA players

Opener What is the law of supply? How does the law of supply explain the increase in NBA players from overseas? What do you think would happen to the amount of foreign players if the average NBA salary decreased? Why?

Defined The willingness and ability of producers to offer goods and services for sale Remember, producers always want to make a profit Therefore: When prices go down, quantity supplied goes down When prices go up, quantity supplied goes up This concept is called the Law of Supply Unlike demand, supply has a direct relationship What is Supply?

Law of Demand Law of Supply Price Demand Price Demand Price Supply Price Supply

Supply Schedules Defined A table that shows how much of a good or service a producer is willing and able to offer for sale at each price in the market Can be used for a single producer or for an entire market Supply Curves What are Supply Schedules & supply curves? Defined A graph that shows how much of a good or service a producer is willing and able to offer for sale at each price in the market Can be used for a single producer or for an entire market A supply curve is the representation on a graph of the information found on a supply schedule

Supply Schedules Supply schedule is two-column table Supply schedule is two-column table Left-hand column lists various prices of a good or service Left-hand column lists various prices of a good or service Right-hand column shows quantity supplied at each price Right-hand column shows quantity supplied at each price

Supply Schedules

Supply Curves Supply curve is graphic representation of law of supply Supply curve is graphic representation of law of supply Supply schedule and curve are based on the assumption that all economic factors except price remain the same Supply schedule and curve are based on the assumption that all economic factors except price remain the same

Supply Curves

What are the costs of production? Costs that producers must pay in order to produce an item for sale Why do they matter? Helps producers understand if it makes economic sense to sell an item or provide a service Costs of production

The Costs of Production Marginal product Marginal product Defined: Defined: The change in total product that results from hiring one more worker The change in total product that results from hiring one more worker How much product is made when you have four workers? Five workers? Six workers? How much product is made when you have four workers? Five workers? Six workers? What is the marginal product of increasing from 4 to 5 workers? What is the marginal product of increasing from 4 to 5 workers? Specialization Specialization Defined: Defined: Having a worker focus on one aspect of production Having a worker focus on one aspect of production New workers help with other tasks so more product is being made, leading to an increase in marginal product New workers help with other tasks so more product is being made, leading to an increase in marginal product

The Costs of Production What information can you get with a marginal product schedule? What information can you get with a marginal product schedule? Increasing returns Increasing returns New workers cause marginal product to increase New workers cause marginal product to increase Diminishing returns Diminishing returns When new workers cause total output to grow, but at a decreasing rate When new workers cause total output to grow, but at a decreasing rate Negative returns Negative returns Output decreases through crowding, disorganization Output decreases through crowding, disorganization

The Costs of Business There are two types of costs that come with running a business There are two types of costs that come with running a business Fixed Costs Fixed Costs Defined: Defined: Expenses owners pay no matter how much they produce Expenses owners pay no matter how much they produce These costs do not go up and down based on production These costs do not go up and down based on production Examples include mortgage, insurance, manager salaries Examples include mortgage, insurance, manager salaries Variable Costs Variable Costs Defined: Defined: Expenses that change as level of output changes Expenses that change as level of output changes These costs do go up and down based on production These costs do go up and down based on production Examples include workers’ wages, electricity, materials, shipping Examples include workers’ wages, electricity, materials, shipping The more a business produces, the more variable costs increase The more a business produces, the more variable costs increase In order to cut costs, businesses cut back business hours, reduce workers, change materials, etc. In order to cut costs, businesses cut back business hours, reduce workers, change materials, etc.

The Costs of Business With the totals determined for marginal costs and fixed costs, how can this information help you as a producer? With the totals determined for marginal costs and fixed costs, how can this information help you as a producer? Total cost Total cost The sum of fixed and variable costs The sum of fixed and variable costs Marginal cost Marginal cost The additional cost of making one more unit of the product The additional cost of making one more unit of the product

Earning the Highest Profit Marginal Revenue Marginal Revenue Money made from sale of each additional unit sold Money made from sale of each additional unit sold This amount is the product/unit’s price This amount is the product/unit’s price Total Revenue Total Revenue This is the amount of income from selling a product This is the amount of income from selling a product Total revenue = P (marginal revenue) x Q (total product produced) Total revenue = P (marginal revenue) x Q (total product produced) 20 x 7= x 7= 140 Total Profit Total Profit Total revenue - total cost Total revenue - total cost = = 38