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 Supply-  anyone who provides goods & services is a producer  manufacturers, farmers, airlines, utility comp., pet sitter  Key words –  if prices.

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Presentation on theme: " Supply-  anyone who provides goods & services is a producer  manufacturers, farmers, airlines, utility comp., pet sitter  Key words –  if prices."— Presentation transcript:

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2  Supply-  anyone who provides goods & services is a producer  manufacturers, farmers, airlines, utility comp., pet sitter  Key words –  if prices to low – some not willing to take on expense of growing and transport  bad weather – not able to supply a farmers market

3  The law of supply –  producers want to earn a profit  when prices rises –  when price falls –

4  Smith family – sell at Montclair farmers market – lots of f & v, special – tomato  how to price the tomatoes ▪ @ $1 per lbs. – supply 24 lbs to market ▪ @ $2 per lbs – supply 50 lbs to market ▪ @ $.50 pr lbs – supply 10 lbs or even none

5  Supply schedule –  shows law of supply in table form  Market supply schedule –

6  2 column table similar to a demand schedule  left hand column – various prices of a good or service  right hand column – quantity supplied at each price  Figure 5.2 – Smith’s supply schedule Price per PoundQuantity Supplied in pounds 2.0050 1.7540 1.5034 1.2530 1.0024 0.7520 0.5010

7  Several stands sell tomatoes at the market  want to know the quantity of tomatoes available for sale at different prices for the entire farmers market – need a market supply schedule  shows quantity supplied by all the producers who are willing and able

8  Figure 5.3 – similar to supply schedule only quantities are larger  market quantity supplied depends on price  market research can be used to create a market supply schedule  Producers use research done by govt. or trade organizations Price per Pound ($) Quantity Supplied in Pounds 2.00350 1.75300 1.50250 1.25200 1.00150 0.75100 0.5050

9  Supply curve –  Market supply curve –  shows how much of a good or service all of the producers in a market are willing or able to offer for sale at each price

10  Figure 5.4 – Smith’s supply schedule  when price increases –  when price decreases –  created using the assumption that all other economic factors except price remain the same

11  Figure 5.5  Shows the quantity of tomatoes that all the producers (the market as a whole) are willing and able to offer for sale at each price  differs in scope, but is made the same way  direct relationship between price and quantity supplied ▪ if price increases among all suppliers then quantity supplied increases ▪ if price decreases, then quantity supplied decreases  constructed on assumption that all other economic factors remain the same  Supply curves for all producers follow the law of supply  does not matter what is produced  why spend more when prices are higher  higher prices signal potential for higher profits

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14  Marginal product –  Janine’s jean factory – 3 workers produce 12 pairs each day  increase the # of workers and output increases  adding a 5 th worker allows for specialization  Specialization –

15  Shows relationship between labor and marginal product  Figure 5.7  1 or 2 workers produce very little, but it is bigger with each one  between 3 & 6 workers allows for specialization, higher production  Increasing returns –  Diminishing returns –  workers 7,8,9,10 work overlaps with 1 st 6 workers  with worker 11, total output decreases  employees crowded, operations disorganized  this is rare, but it can happen

16  Goal is to make a profit –  Fixed costs – are expenses that the owners of a business must incur whether they produce nothing, a little, or a lot  Variable costs –  Total cost – adding fixed and variable costs together  Marginal costs –

17  Janine fixed costs –  the same whether producing or not  salaries of managers who run the company, but not involved directly in production  Variable costs –  increase production and variable cost go up  decrease production (cut back hours, vacation for a week), variable cost decrease  To determine total cost of a pair of jeans –

18  Figure 5.8 – see costs and how they change as quantity of jeans produced changes  # of workers added is a major factor  fixed costs stay the same no matter what the total product amounts to  Marginal cost is determined by  marginal cost decline b/c of specialization but then increases b/c of diminishing returns

19 # of workers Total Product Fixed Costs($) Variable Costs ($) Total Costs($) Marginal Costs($) 00400 - 13 307010 2740621028 31240971377 419401321725 529401722124 642402112513 753402773176 8614037341312 9664047351320 10674050354330 116540539579-

20  Marginal revenue –  it is the price  Total revenue –  Formula – Total Revenue= P x Q  P= price of the product  Q= quantity purchased at that price

21  Janine & figure 5.9  finds total revenue by multiplying marginal revenue by total product  determine profit by subtracting total costs from total revenue ▪ wants to know how many workers to hire and how many pairs of jeans to make to get most profit  need to perform a marginal analysis – a comparison of added costs and benefits  Examine figure 5.9  with 1 worker – does not make a profit  at 2 workers – earns a profit and passes break-even point – total costs and total ▪ revenue are exactly the same  profits continue to rise up to and including the 9 th worker  Profit-maximizing output – reached a level where it has achieved the highest level of profit  marginal revenue and marginal cost are equal  then profits begin to decline  at 10 th worker – increase in marginal cost is greater than increase in marginal revenue

22 # of Workers Total Product Total Cost($) Marginal Cost($) Marginal Revenue($) Total Revenue($) Profit($) 0040--0-40 1370102060-10 2710282014038 312137720240103 419172520380208 529212420580368 642251320840589 7533176201060743 86141312201220807 96651320 1320807 106754330201340797 1165579-201300721

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24  Early curves created using the assumption that all other economic factors except price remain the same  The only thing influence how much producers will offer for sale is price  Supply curve shows that pattern  different points on supply curve show change in quantity supplied  Change in quantity supplied –

25  Each new point shows a change in quantity supplied  a change in quantity supplied -  change is shown by the direction of movement along the curve ▪ to the right – ▪ to the left –  Figure 5.10 shows individual information  market supply curve show similar info for an entire market  they just have large quantities supplied

26  Change in supply –  production costs increase –  production costs decrease –  6 factors can cause a change in supply: input costs, labor productivity, technology, govt. action, producer expectations, number of producers

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28  Input costs –  Anna and nutrition bars made with peanuts  price of peanuts increases – cannot afford to produce as many bars  supply curve shifts to the left - & vice versa

29  Labor productivity –  increased productivity decreases the costs of production – increases supply  specialized division of labor allows for making more goods at a lower cost  better trained and more skilled workers can usually produce more goods in less time and lower costs then less educated and less skilled

30  Technology –  technology used to make goods more efficiently  increased automation leads to increased supplies  allows workers to be more productive and helps business to increase the supply of their services

31  Excise tax –  often placed on alcohol & tobacco (govt. interested in discouraging use)  increases producer cost, decreases supply  Taxes tend to decrease supply, subsidy do the opposite  Regulation –  can affect supply  banning a pesticide can decrease the supply of the crops that depend on it  worker safety can decrease supply by increasing production costs or increase supply by  reducing labor lost to on the job injuries

32  If producers expect price of their product to rise or fall,  producers each react differently  if farmer expects corn prices to rise –

33  When one company develops a new idea, other producers will enter the market and increase the supply of the good or service  supply curve shifts to the right – figure 5.13  increase in # of producers means increased competition  may drive less efficient producers out of the market – decreasing supply

34  Figure 5.13 – ice cream stores  one starts – is a success – 6 months later – 3 more stores  supply of ice cream cones increased all price levels  within 1 yr., one forced out of the market

35  Media entrepreneur – b. April 8, 1946  1970s – Washington lobbyist for National Cable Television Association  recognized void of African American TV market  Conceived idea for Black Entertainment Television (BET)  took $15,000 loan and secured a $500,000 investor  picked up a space on cable TV  started on Jan. 8, 1980  started with 2 hours of programming a week

36  Today – 5 separate channels – operators in US, Canada, Caribbean  at 1 st – shows similar to MTV  later – more diverse programming  BET.com - #1 internet portal for African-Americans  2001 – sold BET to Viacom International for $3 Billion  became 1 st black billionaire  continued to run company for 5 yrs.  companies began to copy Johnson’s ideas for programming for the African- American community

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38  Toyota introduces hybrid Prius in 2000  instant success – not able to increase supply at same pace that consumer demand and prices rose  5 yrs. Later – not meet growing demand  inability to meet increased demand suggests the supply is inelastic  Elasticity of supply –  if a change is price leads to a relatively larger change in quantity supplied -  a 10% increase in price causes a greater than 10% increase in quantity supplied ▪ if a change in price leads to a relatively smaller change in quantity supplied – ▪ if the price and quantity supplied change by the exact same % -

39  Figure 5.15  shows quantity supplied of new leather boots – gained popularity, shortage developed  is elastic  price was raised – and quantity supplied kept up  producer able to keep up because raw materials are inexpensive & easy to get  manufacturing process is also fairly uncomplicated and easy to increase

40  Figure 5.16 – olive oil  supply of olive oil is inelastic  price rose by a factor of 4, supply could not keep pace  oil comes from previous seasons olives

41  Ease of changing production to respond to price change is the main factor in determining elasticity of supply  supply is more elastic over time – a year or several years  Industries that are able to respond quickly to changes in price by either increasing or decreasing production are those that don’t require a lot of capital, skilled labor or difficult to obtain resources  dog-walkers  a business that sells small crafts  industries that would have trouble – auto & oil refiners  takes time to respond to price changes


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