CHAPTER 5 SUPPLY By Mr. Pillsbury 10 vocabulary words

What is Supply? Section 1  If someone asks you to supply babysitting or yard work after school, what is the first thing that comes to mind?  WHAT IS THE PAY? The more the pay the more you are willing to do.

What is Supply? Section 1  Supply: Schedule of quantities that would be offered for sale at all possible prices. See page 114. How does supply differ from demand?  Supply is the ability and willingness to offer products for sale over a wide range of prices  Demand –ability and willingness to purchase products over a wide range of prices.

What causes a changes in supply?  Costs of inputs- For example T-shirts got cheaper because of cotton /ink getting cheaper.  Productivity- If management motivates workers to do a better job. IE: Building a house.  Technology- A new machine or chemical is invented. When costs go down people will make more.

What causes a change in supply?  Taxes and subsidies- When costs of production go up supply curve shifts to left.  Government Regulations: When government mandates new fuel requirements that will affect supply.  Number of sellers- Number of people selling that good.  china.com/

What causes a change in supply?  Expectations: If producers think the price of their product will go up they will hold back on the supply of a product.  Equity in Home: When people feel that they have a lot of equity in their homes they buy things. (IE: Cars)

ELASTICITY  Elasticity of Supply- tells the way in which changes in the quantity supplied are affected by changes in price. TURN TO PAGE 119 and read and have 3 people explain.  Demand and Supply Elasticity: Little or no difference exists between supply and demand elasticity. If quantities are being purchased the concept is demand elasticity. If quantities are being brought to market for sale, the concept is supply.  Keep in mind that elasticity is simply a measure of the way quantity adjusts to a change in price.

The Theory of Production Section 2  Have you ever worked to hard at something—where the outcome of your efforts was less than the work involved? (56 Chevy/ razor) Sometimes you reach a stage of diminishing returns, a stage where you still make progress but at a diminished rate.

Law of Variable Proportions  Law of Variable Proportions: states that in the short run, output will change as one input is varied while the others are held constant.  IE: As you add chili powder to chili the chili will change until it does not taste like chili anymore. The workers in a business are the chili powder and you need to find out what the perfect amount of chili powder is. It is all about how the output is affected by inputs.

Theory of Production  Production function: see page 123 and it is a schedule that relates changes in output to different amounts of a single input.  Total product: total output produced by the firm.  Marginal Product: The extra output generated by adding one more unit of variable output. The amount of product that one extra worker can produce. This will be really important in our current economic times. How many workers do you need to still be successful. The production function shows the Law of Variable proportions

3 Stages of Production  1. Increasing Returns- hiring the first 5 workers each worker contributes more than the previous.  2. Diminishing Returns- As more units of a certain variable are added, each additional worker diminishes the return. Total production keeps growing but by smaller and smaller amounts.  3. Negative returns- Too many workers have been hired, and are getting in each others way. Production is decreasing.

Anticipatory set Section 3  Have you thought about what you will do after graduating from high school?  Go to college?  Get a job?  Have you considered the cost of these options?  Economists view options in terms of marginal cost- in this case, the additional cost of getting more education versus cost of going directly into the job market.

Cost, Revenue, and Profit Maximization Section 3 FOUR MEASURES OF COSTS  Fixed Costs: the cost that a business incurs even if the car wash is idle and output is zero. IE: rent, taxes, salaries  Variable Costs: the cost that does change when the business rate of operation or output changes. IE: electric power, freight charges, labor.  Total Costs: is the sum or the fixed and variable costs.  Marginal Costs: the extra cost incurred when a business produces one additional unit of a product.

Cost, Revenue, and Profit Maximization  1. Applying Cost Principles: The cost and combination of inputs affects the way businesses produce.  Self Service Gas Station  Internet Stores

Cost, Revenue, and Profit Maximization Measures of Revenue:  1. Total Revenue: Is the number of units sold multiplied by the average price per unit.  2. Marginal Revenue: The extra revenue associated with the production and sale of one additional unit.

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Homework  Find someone you know who owns their own business and ask them the 4 measures of costs.  m m

MORE STUFF  Who is making more money Honda or Toyota? How would you know?  ual ual  al al  What type of business would you own? Why?

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TASK  Pass out Car Wash project!!