1. Supply

2. What is Supply?  Supply- The amount of a product that would be offered for sale at all possible prices that could prevail in the market  Do not forget, this is a behavior; not a number  Supply is showing what could possibly happen at various prices

3. The Law of Supply  Because the producer is receiving payment, it should be no surprise that more will be offered at high prices  The principle that suppliers will normally offer more for sale at high prices and less at lower prices

4. Individual Supply Schedule  Supply Schedule  a listing of the various quantities of a particular product supplied at all possible prices in the market

5. Individual Supply Curve  Supply Curve  the graphical representation of the supply schedule;

6. The Market Supply Schedule/Curve  Refer to page 114, read about Individual and Market Supply Curves and explain the difference between the two  Market Supply Curve- shows the quantities offered at various prices by all firms that offer the product for sale in a given market  What’s is the difference between a Demand Curve vs. Supply Curve??

7. Change in Quantity Supply vs. Change in Supply  Think back to what we talked about with demand, grab a partner and read about the difference between a change in quantity supplied and a change in supply.  Change in supply- a situation where suppliers offer different amounts of products for sale at all possible prices in the market

8. Factors Causing a change in Supply  Cost of Inputs; labor or packaging  Productivity; motivation, training, or satisfaction of the job  Technology; efficiency or factors of production  Taxes and Subsidies- government payment to an individual, business, or other group to encourage or protect a certain type of economic activity  Expectations  Government Regulations; increased->restricts supply ( shifts to the left ), decreased->lower production costs->increasing supply ( shifts to the right )  Number of Sellers

9.  Using the table, read pages 116-118 and provide explanations in the first column for each of the following topics. Show your understanding of each of these topics and how they effect the producers ability to supply products.

10. Elasticity of Supply  Supply elasticity- a measure of the way in which quantity supplied responds to a change in price  After you have drawn the graph representing all 3 types of elasticity of supply, in the box next to the graph explain the determinant of supply and how elasticity of supply is different than elasticity of demand.

11. Elasticity of Supply vs. Demand  Number of substitutes has no bearing on supply  Considerations such as the ability to delay the purchase or the portion of income consumed have no relevance  ONLY PRODUCTION CONSIDERATIONS DETERMINE SUPPLY ELASTICITY!!! (i.e. automobiles, dishwashing machines, ships vs. ice cream cones, kites, candy)

12. The Theory of Production  The relationship between factors of production (land, labor, capital, and entrepreneurs) and the output of goods and services  Deals with production in short and long run  Short Run  a period of production that allows production to change only the amount of the variable input called labor  Long Run  a period of production long enough for producers to adjust the quantities of all their resources, including capital

13. Law of Variable Proportions  Says that in the short run, output will change as one input is varied while the others are held constant.  Deals with the relationship between the input of productive resources and the output of final products.  Economists like to only gauge one factor at a time…Why is that?

14. Production Function  Illustrates the Law of variable Proportions  Describes the relationship between changes in output to different amounts of a single input while other inputs are held constant

15. Answer the following questions using Figure 5.5 of page 124  What is the one input that is changing on the table?  Explain in your own terms what the second column is telling us.  Explain in your own terms what the third column is telling us.  What’s the point…?

16. Three Stages of Production  …To determine the optimal number of variable units to be used in production therefore maximizing profits  Total product- total output produced by a firm  Marginal product- the extra output or change in total product caused by the addition of one more unit of variable input  Increasing returns (efficiency, balanced worker to resources ratio ->increased marginal products), diminishing returns (total output grows but at a slower rate-> decreasing marginal products, however still positive), and negative returns (marginal product becomes negative) Based on the way marginal product changes as the variable input of labor is changed

17. Measures of Cost  A business must analyze all the things that are a cost to the business; land, labor, capital, and entrepreneurship  Total fixed cost/overhead- the cost that a business incurs even if the plant is idle and output is zero (i.e. salaries to executives, interest charges on bonds, rents payments on leased properties, and local and state property taxes)  Also includes depreciation which is the gradual wear and tear on capital goods over time an through use

18. Measures of Cost  Variable cost- a cost that changes when the business rate of operation or output changes; associated with labor and raw materials (other examples include electric power costs to run machines and freight charge to ship the final product)  Total cost- the sum of the fixed and variable costs; takes into account all the costs a business faces in the course of its operations  Marginal cost- the extra cost incurred when a business produces one additional unit of a product; per-unit increase in variable costs that stems from using additional factors of production ( unit variable cost/marginal product )

19. Applying Cost Principles  The cost and combination, or mix, of inputs affects the way business produce  Examples  Self-Service Gas Station  Internet Stores ( e-commerce- electronic business or exchange conducted over the internet)

20. Measures of Revenue  Marginal revenue- the extra revenue associated with the production and sale of one additional unit of output ( change in total revenue/marginal product )  Total revenue- the number of units sold multiplied by the average price per unit

21. Marginal Analysis  Examining the cost and Benefits of every single decision  All businesses take this examination step- by-step and find the exact point where your cost out-weighs your benefit; at that point they have gone too far.  All businesses and people desire for benefits to out-weigh your cost.

22. Marginal Analysis  Comparing the costs and benefits of decisions that are made in small, incremental steps  Break-even point- the total output or total product the business needs to sell in order to cover its total costs (How many workers must be hired to break even?)  Profit-maximizing quantity of output- reached when marginal cost and marginal revenue are equal; no other combination will be more profitable As long as marginal cost < marginal revenue, the business will keep hiring workers