Chapter 5 SUPPLY .
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Transcript of Chapter 5 SUPPLY .
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Chapter 5SUPPLY
http://www.youtube.com/watch?v=R6ojYtKazgQ
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SupplySupply – the amount of goods available
Law of Supply – the higher the price, the larger the quantity produced
Quantity Supplied – how much of a good is offered for sale at a specific price
http://www.youtube.com/watch?v=tXt_3H3e2bg&list=PLD78A4CA3338CFA7E&index=9&
feature=plcp
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Supply Schedule
Supply Schedule – table that demonstrates a relationship between price and quantity supplied for a specific good
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Market Supply Schedule
All the supply schedules of individual firms add together
Shows relationship between prices and total quantity supplied by all firms in a particular market
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Supply Graph
Graphical representation of a supply schedule
Illustrates the law of supplyAny change in
price moves you along the curve
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Changes in SupplyAny factor other than price affects a firm’s ability to supplyCurve will shift
Bad for business, supply curve shifts leftIncreased costs
Good for business, supply curve shifts right Decreased costs
http://www.youtube.com/watch?v=P8G1HIlRppo
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Factors Affecting Supply
1. Number of sellers : more sellers means greater supply
2. Expectations - will the economy
grow or weaken?3. Technology – lowers costs
4. Input prices –if input costs rise, supply decreases as profits fall
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Government Intervention
Gov’t can affect costs and supply through policySubsidies : gov’t payment to support a business or market
Taxes: increase or lower costsRegulation: increases costs
http://www.youtube.com/watch?v=P8G1HIlRppo
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Supply in the Global Economy
Global supply depends on the policies and stability of foreign countriesExternal situations in other countriesDisrupt supply chains
Import restrictions reduce supply
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Elasticity of Supply
Measure of how suppliers respond to a price change
Elasticity – supply is very sensitive to price changes
Inelastic – supply is NOT sensitive to price changes
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Elasticity of SupplyA supplier’s elasticity is typically dependant upon their ability to react, not so much their willingness.
The greatest factor that affects a producer’s elasticity is time horizonAccording to the law of supply a producer wants to
supply more if prices rise, but can they?
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Costs of Production
How many workers should a firm hire?
How much should a firm produce?
How productive is each worker? Marginal Product of Labor – change in
output per workerIncreasing Marginal Returns – more output per worker (specialization)
Decreasing Marginal Returns – the point at which adding more workers decreases returns
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Production CostsFixed costs –
have to be paid no matter whether a firm produces or not rent, a loan
Variable costs – may change with the amount produced(electric bill) – raw materials/labor
Total Cost – fixed + variable costsOperating Cost - the daily cost
running a business
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OutputProfit = total revenue minus total costs
MR=MC Optimal level of output to ensure profit
Firms will produce until the marginal cost equals the marginal revenue guaranteeing that no more profit can be made
Marginal revenue – additional income from producing one more unit
Marginal cost – additional cost from producing one more item.
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MR=MCBecause costs rise as firms increase
output, a firm must find where the curves meet
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Equilibrium & StabilityWhen the supply and demand curves meet or intersect the market reaches a clearing price or equilibriumIt is considered stable and balanced At this point the quantity that buyers
demand is equal to the quantity producers supply
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Ceilings and FloorsPrice ceiling is a legal
maximum price that can be chargedControls on Rent Binding is below equilibrium
Price Floor is a legal minimum priceMinimum wageBinding is above equilibrium
Are these tactics beneficial?
http://www.youtube.com/watch?v=4MMIkkG8pAQ&feature=related