1. Bell Ringer – CHALLENGE!
Get ready for a Minute to Win It
In one minute, list as many types of diet soda as you can.
Ready… set… GO!

2. Define the law of supply.
Objectives
Define the law of supply.
Explain how prices encourage new businesses to join the market.

3. Before we continue…
When talking about demand, we were talking primarily about the consumers (their choices about what to buy, when/how much to buy, etc.).
When talking about supply, we are talking primarily about producers and firms.
A very important distinction!

4. The Law of Supply Supply is the amount of goods available.
The law of supply states that as prices rise, so will the quantity supplied.
As the price of a good increases, producers will offer more of it.
As the price decreases, they will offer less.
The law of supply includes two movements:
Firms changing their level of production
Firms entering or exiting the market

5. The Law of Supply
Law of Supply
P S
RELATIONSHIP
DIRECT

6. Supply Thought Experiment
How many hours would you be willing to work in a week if you were paid…
$1/hour?
$5/hour?
$10/hour?
$25/hour?
$100/hour?
Checkpoint Answer: Because the law of supply states that as prices rise, so does the amount of quantity supplied

7. The Law of Supply, cont.
How does the law of supply affect the quantity supplied?
As prices rise, producers will offer more of a good and new suppliers will enter the market… why?
Answer: In the hopes of making a profit.

8. Market Entry
Rising prices encourage new firms to join the market and will add to the quantity supplied of the good.
Take, for example, the music market:
When a particular type of music becomes popular, such as disco, grunge, or dubstep, more bands will play that type of music in order to profit from such music’s popularity.
This action reflects the law of supply.
Checkpoint Answer: Because the law of supply states that as prices rise, so does the amount of quantity supplied 8

9. Key Terms supply: the amount of goods available
law of supply: producers offer more of a good as its price increases and less as its price falls

10. Bell Ringer How can this be?? Oil is a nonrenewable resource.
Humanity consumes 96 million barrels of oil per day, and this number continues to climb.
However, the world reserves of oil have increased over the past 35 years. (Today’s oil reserves stand at over 1 trillion barrels.)
In other words, we have more oil than ever.
How can this be??

11. Objectives Analyze the various production costs of a firm.
Define the law of diminishing returns.

12. Where does the rest of the money go??
Business Costs
In 2016, Walmart reported $482 billion in revenue.
However, Walmart makes a profit of only 3-6 cents for every dollar of revenue.
In your notes, write a list of possible answers to the question…
Where does the rest of the money go??

13. Introduction
When thinking about how to maximize profits, firms think about the cost involved in producing additional units of a good.
Costs producers take into consideration are:
Fixed costs
Variable costs

14. Fixed Costs Fixed costs don’t change with the quantity supplied.
They include:
Property taxes
Rent
Machinery repair
Salaried labor
Insurance

15. Variable Costs Variable costs increase as quantity produced increases.
They include:
Electricity and heating bills
Price of raw materials
Hourly or commission labor
Transportation

16. Diminishing Returns
Has there been a time in your life where you’ve put so much effort into doing something that you eventually feel like you’re not getting as much out of it as you’re putting into it?
What was it? How did it make you feel?

17. Law of Diminishing Returns
The law of diminishing returns refers to a point in time where the level of benefits gained is less than the amount of money or energy invested.
In plain English… it simply means the juice isn’t worth the squeeze.

18. Diminishing Returns Review
What does the Law of Diminishing Returns look like?
Imagine that our class runs a business where we get paid for each ball we can transfer from one box to another.
Let’s see if we can find the optimal number of employees for our business.

19. Rules
Every employee must handle every product (“Chinese fire drill” style).
One ball at a time.
The product is fragile… No throwing! Dropped product = broken!
Only the balls that are in the box when time expires count toward the total output.

20. Key Terms
fixed cost: a cost that does not change, no matter how much of a good is produced
variable cost: a cost that rises and falls depending on the quantity produced

21. Bell Ringer A carton of cigarettes can cost as much as $70!
Why do you think cigarettes cost so much?

22. Objectives
Identify the ways that the government can influence the supply of goods.
Define “subsidies” and how their use directly influences food and other commodity production in the U.S.

23. Government Influences
Excise taxes are taxes on the production or sale of certain goods
They are collected by the producer and not paid directly by the consumer. This makes them "hidden" in the price of a good/service.
Examples?
Cigarettes, Alcohol, Gambling, Gas, Marijuana

24. Government Influences
Excise taxes are often called “sin taxes” because the government uses them to control or limit certain behaviors (smoking, excessive drinking, gambling, etc.).
Do you think “sin taxes” are appropriate?

25. Government Influences, cont.
Regulation
Indirectly, government regulation often has the effect of raising costs.
EX.- When the government regulated the auto industry to cut down on pollution and increase car safety in the 1970s, these regulations led to an increase in the cost of manufacturing cars.

26. Government Influences, cont.
Subsidies
A government payment that supports a business or market
Subsidies generally lower cost, which allows a firm to produce more goods.
Reasons for subsidizing products include:
To prevent food shortages
To protect domestic industries from foreign competition.
Examples: Sugar, Oil, and CORN

27. Key Terms
subsidy: a government payment that supports a business or market
excise tax: a tax on the production or sale of certain goods; sometimes called a “sin tax”
regulations: government intervention in a market that affects the production of a good