Slide 1

Slide 2 Chapter 5 Supply Slide 3 1. The Law of Supply a. a. is amount of goods available Slide 4 1. The Law of Supply a.Supply a.Supply is amount of goods available b.the higher the price, the more people produce-they will make more Slide 5 1. The Law of Supply a.Supply a.Supply is amount of goods available money b.the higher the price, the more people produce-they will make more money! c. c. -how much of a good is offered for sale at a specific price Slide 6 1. The Law of Supply a.Supply a.Supply is amount of goods available money b.the higher the price, the more people produce-they will make more money! c.Quantity supplied c.Quantity supplied-how much of a good is offered for sale at a specific price Slide 7 Q1Q1Q1Q1 S1S1 S Chg in QS [Price change] P QS Chg in S [Non-price change] Slide 8 d.if price of a good falls, some firms will produce less, why?? Slide 9 they cant make as much money d.if price of a good falls, some firms will produce less, why?? they cant make as much money e.some companies will even enter the market if price is going up Slide 10 Slide 11 f. 2 movements that combine to create all of supply 1.companies changing their level of production 2.companies entering or leaving the market Slide 12 g. Higher production 1.if a company is already making money selling a product, a increase in price will increase companies profits Slide 13 g. Higher production (Ceteris paribus) 1.if a company is already making money selling a product, a increase in price (Ceteris paribus) will increase companies profits 2.then company will want to produce more, to make more Slide 14 g. Higher production (Ceteris paribus) 1.if a company is already making money selling a product, a increase in price (Ceteris paribus) will increase companies profits money 2.then company will want to produce more, to make more money Slide 15 Producers supply more at the higher price because the opportunity cost increases if they dont. Consumers consume less at the higher price because they now have less money to spend. Producers supply less at the lower prices because the opportunity cost decreases if they dont. Consumers consume more at the lower price because they now have more money to spend. I was going to buy a Honda but this car is $4,000 cheaper. Im saving money at the lower price. I normally eat one, but at this low price, Im Having two. Slide 16 3.example of pizzeria on page 102-if pizzeria was not making profit selling pizza, they would either produce something else, or rise the price of the pizza-if cost of making pizza stayed the same, they would make more profit.if cost of making pizza increases, then they would Slide 17 not make a profit 3.example of pizzeria on page 102-if pizzeria was not making profit selling pizza, they would either produce something else, or rise the price of the pizza-if cost of making pizza stayed the same, they would make more profit.if cost of making pizza increases, then they would not make a profit 4.when price of product goes up, the producer will want to, so they can make more money Slide 18 not make a profit 3.example of pizzeria on page 102-if pizzeria was not making profit selling pizza, they would either produce something else, or rise the price of the pizza-if cost of making pizza stayed the same, they would make more profit.if cost of making pizza increases, then they would not make a profit make more 4.when price of product goes up, the producer will want to make more, so they can make more money Slide 19 . QS 2 S QS 1 QS 1 P2P2P2P2 P1P1P1P1 Slide 20 h. Market entry 1.other people who notice the profits of a company may try to enter the market 2.example-page 102-music industry- disco music of the 1970s new people entered the market to make money of the new disco craze Slide 21 2. The Supply Schedule a.supply schedule shows relationship between Slide 22 2. The Supply Schedule price and quantity supplied for a specific good a.supply schedule shows relationship between price and quantity supplied for a specific good b.it will show factors that can change- example-price and units supplied c.supple schedule lists supply for a very specific set of conditions all other conditions are assumed to remain Slide 23 2. The Supply Schedule price and quantity supplied for a specific good a.supply schedule shows relationship between price and quantity supplied for a specific good b.it will show factors that can change- example-price and units supplied constant c.supple schedule lists supply for a very specific set of conditions all other conditions are assumed to remain constant Slide 24 d. A change in quantity supplied 1.word supply is used to refer to the relationship between price and quantity supplied 2.supply includes all possible combinations of price and output pg103 3.rise or fall in price, will cause quantity supplied to change, but not the supply schedule-a change in a goods price moves the seller from one row to another in same schedule, Slide 25 d. A change in quantity supplied 1.word supply is used to refer to the relationship between price and quantity supplied 2.supply includes all possible combinations of price and output pg103 but does not change supply itself 3.rise or fall in price, will cause quantity supplied to change, but not the supply schedule-a change in a goods price moves the seller from one row to another in same schedule, but does not change supply itself 4.a new schedule has to be made with other than the price changes Slide 26 e. Market supply schedule 1.all supply schedules of companies in a market can be added up to create Slide 27 e. Market supply schedule market supply schedule 1.all supply schedules of companies in a market can be added up to create market supply schedule 2.shows relationship between prices and quantity supplied by companies-like in a whole city Slide 28 e. Market supply schedule market supply schedule 1.all supply schedules of companies in a market can be added up to create market supply schedule TOTAL 2.shows relationship between prices and TOTAL quantity supplied by companies-like in a whole city Slide 29 e. Market supply schedule market supply schedule 1.all supply schedules of companies in a market can be added up to create market supply schedule TOTAL 2.shows relationship between prices and TOTAL quantity supplied by ALL companies-like in a whole city Slide 30 f. The Supply Graph 1.when the data points in supply schedule are graphed- Slide 31 f. The Supply Graph supply curve 1.when the data points in supply schedule are graphed-supply curve 2.same as demand curve, except horizontal axis measures quantity of good supplied 3.supply curve rises from left to right (pg 105) Slide 32 SUPPLY SCHEDULE $12345 P QS CORN 520355060 S 5 20 35 50 60 SUPPLY CURVE $5 $4 $3 $2 $1 P P QS Slide 33 P1P1P1P1 QS 1 S P1P1P1P1 S Take it. We are losing money. QS1 Slide 34 Bread Butter Slide 35 Supply Shifters [RATNEST] R INVERSE 1. R esource Cost [wages /raw materials ] [INVERSE] A INVERSE 2. A lternative Output Prices [INVERSE] T DIRECT 3. T echnology [DIRECT] N DIRECT 4. N umber of Suppliers [DIRECT] E INVERSE 5. E xpectations [about future price] [INVERSE] S DIRECT 6. S ubsidies [DIRECT] T INVERSE 7. T axes [INVERSE] QS1 QS2. Broccoli smalle Suppliers produce smaller/ larger larger quantities at each price. Substitutes in production Things that can be supplied with the same resources. I have just 200 acres. S1S1S1S1 S Corn S1S1S1S1 P S2S2S2S2 Alternative Output Price Change [INVERSE] QS 1 QS 1 P2P1P2P1 P S1S2S1 S2S1S2S1 S2 [new football league- bigger S of games ] Dont confuse these two with Chg in QS. QS 2 QS 3 S3S3S3S3 S2S2S2S2 P [capital cost] Slide 36 g. Supply and Elasticity 1.elasticity of supply is measure of the way suppliers respond to change in price 2. 2. (changes greater than 1) (chance is less than 1) and (exactly equal to 1) Slide 37 g. Supply and Elasticity 1.elasticity of supply is measure of the way suppliers respond to change in price 2.elastic 2.elastic(changes greater than 1) (chance is less than 1) and (exactly equal to 1) Slide 38 g. Supply and Elasticity 1.elasticity of supply is measure of the way suppliers respond to change in price 2.elastic inelastic 2.elastic(changes greater than 1) inelastic (chance is less than 1) and (exactly equal to 1) Slide 39 g. Supply and Elasticity 1.elasticity of supply is measure of the way suppliers respond to change in price 2.elastic inelastic unitary 2.elastic(changes greater than 1) inelastic (chance is less than 1) and unitary (exactly equal to 1) Slide 40 Quantity Supplied Slide 41 3. Elasticity of Supply and Time a.Time determines the elasticity b.in short run, if a company cannot easily changes its output level, the supply is Slide 42 3. Elasticity of Supply and Time a.Time determines the elasticity inelastic b.in short run, if a company cannot easily changes its output level, the supply is inelastic c.in long run, firms are more flexible, so supply is Slide 43 3. Elasticity of Supply and Time a.Time determines the elasticity inelastic b.in short run, if a company cannot easily changes its output level, the supply is inelastic elastic c.in long run, firms are more flexible, so supply is elastic Slide 44 d. Short Run 1.Orange grove is example-got to grow trees to produce oranges-pg105-cannot grow more trees too fast, but in short run maybe use more effective pesticide-inelastic 2.also new producers will Slide 45 d. Short Run 1.Orange grove is example-got to grow trees to produce oranges-pg105-cannot grow more trees too fast, but in short run maybe use more effective pesticide-inelastic not enter into the market 2.also new producers will not enter into the market 3.short run, inelastic, regardless if price changes 4.other business can me more changing, and more elastic in short run-business that supply services Slide 46 e. long run 1.supply can be more elastic over time-grow more orange trees 2.supply becomes more elastic over time Slide 47 4. Cost of Production a. Labor and Output 1.how many workers to Slide 48 4. Cost of Production a. Labor and Output 1.how many workers to hire effects production 2.Marginal Product of Labor- Slide 49 4. Cost of Production a. Labor and Output 1.how many workers to hire effects production 2.Marginal Product of Labor-change in output from hiring more workers 3.measures in the change in output at the margin, where the last worker has been hired or fired (1 worker produced 4 units, a second one total output is 10-so the marginal product of labor is 6) Slide 50 4.Increasing Marginal Returns-more workers means each one can Slide 51 4.Increasing Marginal Returns-more workers means each one can specialize-increasing returns 5.Diminishing Marginal Returns-too many workers causes the output to Slide 52 4.Increasing Marginal Returns-more workers means each one can specialize-increasing returns 5.Diminishing Marginal Returns-too many workers causes the output to diminish or decrease 6.negative marginal returns- Slide 53 4.Increasing Marginal Returns-more workers means each one can specialize-increasing returns 5.Diminishing Marginal Returns-too many workers causes the output to diminish or decrease 6.negative marginal returns-decrease in production Slide 54 b. Production Costs 1.2 types of cost for producers-fixed and variable 2.Fixed- Slide 55 b. Production Costs 1.2 types of cost for producers-fixed and variable cost that does not change-rent, salaries, etc 2.Fixed-cost that does not change-rent, salaries, etc 3. 3. -costs that rise and fall depending on quantity produced-hourly workers, electricity bills Slide 56 b. Production Costs 1.2 types of cost for producers-fixed and variable cost that does not change-rent, salaries, etc 2.Fixed-cost that does not change-rent, salaries, etc 3.variable costs 3.variable costs-costs that rise and fall depending on quantity produced-hourly workers, electricity bills 4.Total costs- Slide 57 b. Production Costs 1.2 types of cost for producers-fixed and variable cost that does not change-rent, salaries, etc 2.Fixed-cost that does not change-rent, salaries, etc 3.variable costs 3.variable costs-costs that rise and fall depending on quantity produced-hourly workers, electricity bills fixed and variable together 4.Total costs-fixed and variable together 5.Marginal cost- Slide 58 b. Production Costs 1.2 types of cost for producers-fixed and variable cost that does not change-rent, salaries, etc 2.Fixed-cost that does not change-rent, salaries, etc 3.variable costs 3.variable costs-costs that rise and fall depending on quantity produced-hourly workers, electricity bills fixed and variable together 4.Total costs-fixed and variable together the additional cost of producing one more unit pg 112 5.Marginal cost-the additional cost of producing one more unit pg 112 Slide 59 c. Setting output 1.companies want to make most money 2. -equal to the price of each unit multiplied by number of goods sold Slide 60 c. Setting output 1.companies want to make most money 2.total revenue-equal to the price of each unit multiplied by number of goods sold 3.companies want to produce where there is the biggest gap between Slide 61 c. Setting output 1.companies want to make most money 2.total revenue-equal to the price of each unit multiplied by number of goods sold 3.companies want to produce where there is the biggest gap between total cost and total revenue Slide 62 d. Marginal revenue and marginal cost 1.marginal revenue is the additional income from selling one more unit of a good- Slide 63 d. Marginal revenue and marginal cost 1.marginal revenue is the additional income from selling one more unit of a good-usually equals market price 2.never want the marginal cost to be higher than marginal revenue Slide 64 5. Changes in Supply a.Input costs-any change in cost of input, will affect the supply b.effect of rising costs-an increase in cost of input= Slide 65 5. Changes in Supply a.Input costs-any change in cost of input, will affect the supply b.effect of rising costs-an increase in cost of input=higher marginal cost c.so if company does not control price, they would not be making any money, so they would have to decrease production (supply)- supply falls, supply curve shifts to Slide 66 5. Changes in Supply a.Input costs-any change in cost of input, will affect the supply b.effect of rising costs-an increase in cost of input=higher marginal cost c.so if company does not control price, they would not be making any money, so they would have to decrease production (supply)- supply falls, supply curve shifts to left d.technology-advances in technology can lower production cost- Slide 67 5. Changes in Supply a.Input costs-any change in cost of input, will affect the supply b.effect of rising costs-an increase in cost of input=higher marginal cost c.so if company does not control price, they would not be making any money, so they would have to decrease production (supply)- supply falls, supply curve shifts to left d.technology-advances in technology can lower production cost-it lowers costs, and increases supply at all price levels Slide 68 e. Governments influence on Supply 1. -government payment that supports a business or market-usually food-done to help struggling areas Slide 69 e. Governments influence on Supply 1.subsidies-government payment that supports a business or market-usually food-done to help struggling areas 2.government usually allots how much a crop is produced, so that prices will stay high 3. -tax on production or sale of a good-increases production costs by adding extra cost for each unit sold Slide 70 e. Governments influence on Supply 1.subsidies-government payment that supports a business or market-usually food-done to help struggling areas 2.government usually allots how much a crop is produced, so that prices will stay high 3.taxes excise tax-tax on production or sale of a good-increases production costs by adding extra cost for each unit sold 4. -government intervention in a market that affects the price, quantity, or quality of a good Slide 71 e. Governments influence on Supply 1.subsidies-government payment that supports a business or market-usually food-done to help struggling areas 2.government usually allots how much a crop is produced, so that prices will stay high 3.taxes excise tax-tax on production or sale of a good-increases production costs by adding extra cost for each unit sold 4.regulation-government intervention in a market that affects the price, quantity, or quality of a good Slide 72 f. future expectations of prices 1.if price is expected to increase, producers will store the goods til later, causing supply to decrease (soybeans, wheat) 2.if price is expected to decrease, Slide 73 f. future expectations of prices 1.if price is expected to increase, producers will store the goods til later, causing supply to decrease (soybeans, wheat) producers will sell product now, increase in supply 2.if price is expected to decrease, producers will sell product now, increase in supply 3. 3. -decrease in the value of the dollar-if a product will hold its value, producers will hang on the product as long as they can Slide 74 f. future expectations of prices 1.if price is expected to increase, producers will store the goods til later, causing supply to decrease (soybeans, wheat) producers will sell product now, increase in supply 2.if price is expected to decrease, producers will sell product now, increase in supply 3.inflation 3.inflation-decrease in the value of the dollar-if a product will hold its value, producers will hang on the product as long as they can Slide 75 g. Number of suppliers 1.more producers enter market, supply increases 2.positive relationship in producers and supply Slide 76 h. Where do firms produce? 1.key question is cost of transportation- cost of transporting inputs and outputs 2.if input is expensive, Slide 77 h. Where do firms produce? 1.key question is cost of transportation- cost of transporting inputs and outputs 2.if input is expensive, they locate close to them 3.if output is too expensive to transport, Slide 78 h. Where do firms produce? 1.key question is cost of transportation- cost of transporting inputs and outputs 2.if input is expensive, they locate close to them 3.if output is too expensive to transport, they locate closest to consumer Slide 79 The End