1. Law of Supply

2. Supply supply--amount of goods/services that producers are willing and able to offer for sale at various possible prices Quantity supplied—amount of goods/services that a producer is willing to sell at each particular price. What is the difference between supply and quantity supplied? What is the difference between supply and demand? (think about the relationship between price and quantity)

3. Supply

4. Law of Supply Law of supply-- higher the price consumers are willing and able to pay, the more the sellers are willing to produce. Visa versa. Why do you think this is true?

5. Law of Supply 1. profit motives profit—the amount of money left after a producer has paid all their costs a business makes a profit when revenues (amt. coming in) are greater than the money going out costs of production—the outgoing costs wages, salaries, rent, interest on loans, utilities, raw materials to make a profit producers must provide the goods/services that people want, at a price consumers are willing and able to pay

6. Law of Supply profits and markets High demand for a good leads to increased production and higher profits Higher profits in this market lead other producers to enter markets Lower demand leads to decrease in production and lower profits Lower profits in this market lead other producers to leave the market

7. Curves & Schedules supply curve-a graphic representation of the amount of units a seller will make available at all possible prices. direct relationship between price and quantity supplied upward sloping curve supply schedule-a numerical representation of the amount of units a seller will make available at all possible prices displaying the relationship between the price of a good/service and the quantity that producers will supply

9. Changes in Quantity Supplied any movement along the supply curve. shifts result from change in price only

10. Changes in Supply: Determinants of Supply supply curve move left (not up) and right (not down) as supply is increased or decreased

11. Changes in Supply: Determinants of Supply change in resource prices (raw materials, electricity, wages) change in technology government tools tax-required payment of money to the gov’t (materials, property, and profits) subsidies-payments to private businesses from gov’t (usually agriculture) regulation-rules about how companies conduct business (pollution, discrimination, worker’s rights) change in prices of related goods (ag products) change in producer expectations (sell high, hold low) change in total number of suppliers (competition)

12. Elasticity of Supply the degree to which price changes affect the quantity supplied; can be elastic or inelastic Elastic Supply—when a small change in price causes a major change in the quantity supplied. elastic supply if products can be made: quickly inexpensively using a few readily available resources examples: sports team souvenirs Christmas toys fad items

13. Elasticity of Supply Inelastic Supply—when a change in the goods price has little impact on the quantity supplied. inelastic supply if products requires a great deal of: time money resources that are not readily available examples: gold fine art rare and precious items

14. Critical Thinking Critical thinking question: You are an alchemist in the Middle Ages trying to convert base metals to gold. What would be the economic consequences if you succeed and your methods become widely known? the supply of gold would skyrocket and destroy its value as a precious metal. This is a shift in the supply curve, not a change in quantity supplied.

15. Productivity the level of output that results from a given level of input Total Product (output)—all the product a company makes in a given period of time, with a given amount of input Marginal Product—the change in output generated by adding one more unit of input the value of workers output marginal means additional, or last worker hired

16. Productivity: Law of Diminishing Returns Law of Diminishing Returns-production principle that states when one factor of production is increased while the others are held constant, a point will be reached where each additional input will result in smaller and smaller outputs, or diminishing returns. law applies to all factors of production when they are added to a fixed amount of other resources. This must be kept in mind when searching for the right combination of land, labor and capital.

17. Productivity: Law of Diminishing Returns example: factory making whiffle ball bats. 10,000 sq. ft. w/ 10 machines. Add 10 more machines. Add 10 more machines. With each new machine added the productivity percentage decreases because of overcrowding. Eventually production will come to halt if machines are continued to be added. Similar to Law of Diminishing Marginal Utility. law of diminishing returns begins to set in when total production begins to increase at a decreasing rate. We will practice examples of this in a bit.

18. Productivity: Law of Diminishing Returns Increasing Marginal Returns as the number of workers increases, the total output rises at a steep rate Diminishing Marginal Returns when output begins to increase at a diminishing rate Negative Marginal Returns workers (machines) getting in each others way, making each other frustrated and lowering morale leads to a drop in the total product in production curve

19. Productivity: Costs of Productions directly affects the amount of profit their business makes the ingoing portion of profit Fixed Costs (overhead) --a cost of doing business that remains more or less constant regardless of volume of business Rent, interest on loans, insurance, taxes, salaries, routine wear and tear Variable Costs- costs that increase as output increases Wages, raw materials, and any resource or capital Total Costs—the sum of a companies fixed and total costs at 0 output a companies total cost is equal to their output Marginal Costs—the additional cost of producing one more unit of output

20. Productivity: Economies of Scale Economies of Scale-increased productivity while reducing costs…goal of a business Division of Labor (Specialization) breaking down total production process into a series of simpler tasks Advantages: workers need only be trained for one operation or process (reduces cost) increases productivity (efficient) Disadvantages: boring fill-ins when absent Quantity Discounts-more resources obtained at lower cost (Bulk purchase) Specialized Machinery-necessary for large-scale production (auto industrial automation) Easier Credit-less risk to lending institutions easier to get credit w/ good collateral & credit get lower interest loans (prime rate) Research, Development, By-Products-can afford to hire scientists, build labs, and conduct research. by products are when meat packing places produce glue, fertilizers, soap, meat, dog food, ect.