Supply. What is Supply? Supply- The amount of a product that would be offered for sale at all...
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Transcript of Supply. What is Supply? Supply- The amount of a product that would be offered for sale at all...
Supply
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
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
Individual Supply Schedule Supply Schedule a listing of the
various quantities of a particular product supplied at all possible prices in the market
Individual Supply Curve Supply Curve the graphical
representation of the supply schedule;
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??
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
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
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.
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.
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)
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
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?
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
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…?
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
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
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)
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)
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
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.
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